Central banks around the world have pushed their lending rates to historic lows in an effort to stave off a total global financial and economic collapse. As a result interest rates have remained for the most part at these low levels with many investors trying to take advantage of other's mistimed purchases.
2010 will likely be the year when everything changes...
Here’s some good advice from Gordon Pape at GuruFocus.com with his stock market insight for Canadian investors:
1. Avoid locking in for the long-term. Many people will be making deposits to Tax-Free Savings Accounts (TFSAs) and RRSPs this month. Do not, under any circumstances, put money into GICs with maturities any longer than one year. GIC rates a year from now will likely be at least half a point to a full point more than you'll get today. Two years down the road, you could be looking at rates that are two percentage points or more above those currently offered.
2. Avoid long-term bonds, particularly government issues. They will decline in price as interest rates rise. The one possible exception is real return bonds, which should perform well if inflation does ramp up to the 2% range or beyond.
3. Be prepared for stock market volatility as interest rates start to move higher. As yields rise on lower-risk securities such as bonds and GICs, they will become more attractive to conservative investors.
4. Mortgage rates are likely to rise in 2010 and the upward momentum will escalate in 2011 if the RBC forecasts are anywhere near correct. Homeowners who are stretched thin financially should considering locking in at today's rates.
5. Floating rate preferreds will perform well in a rising rate environment as their dividends will increase.
6. If the Bank of Canada is as aggressive as RBC predicts, the loonie should be even stronger than expected. That will depress gains from U.S. stocks for Canadian investors which means we'll need to be very selective in our choices from Wall Street.
Keeping in mind, there is no magic formula for predicting interest rate movements whether you are considering investing in the stock market or real estate. Many of the top financial institutions base their forecasts on careful research and analysis but today we are living in uncertain times. The reality is predictions are "educated best guesses" and should be kept in that context when ultimately deciding to invest your hard earned monies. With so many unknowns in the economic equation we could see dramatic changes from one quarter to the next.
Generally speaking, it is not unreasonable to suggest that interest rates will go higher. The Bank of Canada will have to start dealing with gains in inflation this year as they are already on the rise. That being said, Canadians should start preparing for these likely rate changes and how they go about moving their investment portfolios.
Take care and have a very prosperous 2010!Sincerely,Jason Neumann, REALTOR®
Century 21 Assurance Realty Ltd.
Cell: (250) 808-7700
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