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%