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August 22, 2021

Investors fail to realize how rising rates kill bonds: report

If the results of the latest research are any indication, investors are in for a big shock once interest rates start rising and bond prices start falling.

In a survey of U.S. investors, investment firm Edward Jones found that two-thirds of the respondents don't understand how rising interest rates will affect their investment portfolios. Twenty-four per cent admitted they “feel completely in the dark about the potential effects.”

And it gets worse.

One-third of those between the ages of 18 and 34 admitted they have "no idea" how interest rate changes will impact their investments. While the level of awareness increased a bit with age, one-quarter of those 65 and older -- who typically gravitate to the income and perceived safety of bonds -- also indicated they had "no idea."

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July 29, 2021

Misery index suggests that stocks have more room to rise

The misery index, as the name suggests, is designed to measure the level of wretchedness felt by ordinary people in the economy. Created by Yale economist Arthur Okun some years ago, it’s calculated by adding the U.S. unemployment rate to the prevailing inflation rate.

Since fear of job loss and shrinking purchasing power through inflation have pervasive effects on the lives of most workers, the index is considered to be a good snapshot of the real economy.

As inflation rises the cost of living increases and, as unemployment rises, more people cross the economic line into poverty.

In both Canada and the United States, the index peaked well above 20% in the early 1980s, largely due to incredibly high inflation. More recently, the 2013 number is around 9 down from a recent peak of 12.9% in November 2011 which is up slightly from a month ago when it was 8.6%.

All of which is good for stocks, claims strategist Ed Yardeni, who took a look at how the misery index has matched up with with bull and bear markets.

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July 23, 2021

Is a 60/40 portfolio split up still the way to go?

What's the ideal mix for your retirement savings?

The rule of thumb for retirement portfolios has long been 60/40: 60 per cent in stocks and 40 per cent in bonds. That’s supposed to be approximately the ideal combination of growth and safety.

That’s not just an arbitrary split either. Mutual fund giant Vanguard went back and ran simple model portfolios based on the 60/40 rule and found that, since 1926, an investor with that allocation could have expected an 8.7 per cent annual return, with losses in 21 out of 87 years.

That doesn't sound too bad, although there's lots of debate as to whether those types of returns are feasible with interest rates being so low.

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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...