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September 21, 2015 | Investing Among Low Returns

Adrian Mastracci

Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA. My expertise in the investment and financial advisory profession began in 1972. I graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971. I then attended the University of British Columbia, graduating with the MBA in 1972. I have attained the “Discretionary Portfolio Manager” professional designation. I am committed to offering clients the highest standard of personal service by providing prompt, courteous and professional attention. My advice is objective, unbiased and without conflicts of interest. I’m part of a team that delivers comprehensive services and best value in managing client wealth.

Today’s 10-year government bond yields are near 1.6% for Canada and 2.2% for the US.
Similarly, the 30-year yields hover near 2.3% for Canada and 3.0% for the US.

Not exactly vibrant returns that inspire.
Yet investors are snapping them up quickly.

I’ve attached Canada’s historical 10-year rate back to 1982.
It points to a slide from over 16% in June 1982 to the recent 1.6% ballpark.

Of course, inflation was higher.
Implications of current yields for investors:

Global economy is weak and may slip more before a rebound.
Savers and retirees are painfully familiar with the slim yield pickings.

Many need to revisit appetite for bond risk, especially high yields.
No assurance that interest rates start to move up by year-end.

Priority one is to determine what is most important.
Choose the return of your money or the return on your money.

That sets the foundation for your investing.
Skip the fancy moves and keep it simple.

I suggest these time-tested strategies for today’s low investment returns:

Bonds add most value to portfolios during worrisome times.
Focus on maturity and credit quality to manage your bond risks.

Confine fixed income investments to short maturities, say to 5 years.
Laddered GIC’s, say to 3 years, are sensible for some portfolios.

Keep some cash invested within 1-year maturities.
Consider high grade corporate bonds, say to 5 years, to improve yields.

Focus on companies with strong balance sheets for your dividend income.
Some portfolios improve with a shift from interest income to more dividends.

Long bonds will need to be sold first when interest rates begin to rise.

Patience helps deal with bond losses that can occur as rates move higher.

Just be mindful of the risks incurred on the way there.

Broad diversification of the total portfolio is your best friend.

Regards,

Adrian

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September 21st, 2015

Posted In: Adrian Mastracci Blog

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