July 2022 update - Jumbo rate hikes and it's not over
Last week, the Bank of Canada surprised everyone by raising its benchmark interest rate by a full percentage point, the largest single hike since the late 1990s. With 4 total hikes since the start of the year, the rate is now at 2.50% whereas it was 0.25% previously. The effects on the economy and Canadians in general are mixed. Banks and other financial institutions will be adjusting their various interest rates for both the loans they make and the amount they pay you for borrowing. Credit cards and most other loans will be much more expensive. If you have a mortgage with a variable rate, you'll be paying much more on that shortly. Higher interest rates will also cool the housing market. So if you are looking to sell your home or borrow from your home equity line, you're likely to find that your home's value has stagnated or even declined. The Bank has no choice given that inflation is so high, projected to hit 8% before the end of the year, and so it will likely continue to raise rates for the next few months, probably totaling an additional 1 percentage point. Things in the U.S. are not better, as inflation there hit 9% annualized, and the Federal Reserve will also continue to raise its rate. However, if you're looking to invest, banks GICs and savings accounts offer a much better yield than before, so there are some positives. All things considered, this will certainly be a tough time for everyone.
Meanwhile, there are no changes to the sample portfolios, but performance for the individual ETFs has been added so you can get a better sense of their performance and the recommendations.
Sample portfolio for a Canadian investor
Asset class | ETF ticker | Weight | Performance July 1-15 | Performance June |
Canadian stocks | VCN | 2.25% | -2.3% | -8.6% |
US stocks | VUN | 11.25% | 3.2% | -6.9% |
Foreign stocks | VIU | 9.00% | -0.7% | -8.1% |
US corporate bonds | ZSU | 0.00% | 0.2% | -1.4% |
Canadian corporate bonds | XSH | 0.00% | 0.1% | -0.8% |
Global high yield bonds | MHYB | 0.00% | 0.4% | -4.7% |
Emerging markets bonds | ZEF | 0.00% | -0.8% | -3.9% |
Global real estate | TGRE | 2.50% | 0.2% | -6.0% |
Canadian mortgage-backed bonds | ZMBS | 30.00% | 0.1% | -0.7% |
Canadian government bonds | CLF | 15.00% | 0.2% | -0.7 |
Global government bonds | XGGB | 15.00% | 0.6% | -1.2% |
Gold | KILO | 15.00% | -5.8% | -1.6% |
Sample portfolio for a US investor
Asset class | ETF ticker | Weight | Performance July 1-15 | Performance June |
US stocks | SCHX | 11.25% | 2.1% | -8.3% |
Non-US stocks | SCHF | 11.25% | -1.8% | -9.7% |
US corporate bonds | SPIB | 0.00% | 0.5% | -2.0% |
Non-US corporate bonds | PICB | 0.00% | -1.2% | -5.8% |
US high yield bonds | SPHY | 0.00% | 1.8% | -6.7% |
Non-US high yield bonds | IHY | 0.00% | -1.8% | -7.5% |
Emerging markets bonds | VWOB | 0.00% | -1.8% | -6.3% |
Global real estate | REET | 2.50% | 0.1% | -8.2% |
US mortgage-backed bonds | MBB | 30.00% | 0.8% | -1.6% |
US government bonds | VGSH | 15.00% | -0.2% | -0.6% |
Non-US government bonds | BWZ | 15.00% | -2.3% | -3.7% |
Gold | GLDM | 15.00% | -6.1% | -1.2% |