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in si d e h a lto n .c o m O a kv ill e B ea ve r | Th ur sd ay , J an ua ry 2 5, 2 01 8 | f e Interest Rate Changed - Should Your Portfolio? This week, the Bank of Canada bumped up the interest rate by 0.25%, to 1.25%. While this decision shows that our economy is strengthening, it raised some concerns among investors, particularly those who own bond funds, also known as fixed income. The reason for their worry, is that when rates go up, bond prices go down. So this week's rate hike, has led some investors to question whether they should scale back or dump their bond funds. There are no straight answer to this question because there are a number of variables which are too complex to cover in this one post. But there are a couple o f rules of thumb that we can offer to help guide investors. B o n d s H a v e D i f f e r e n t L e v e ls o f S e n s i t i v i t i e s Bonds are really just an IOU. When you buy a bond, you're giving a loan, and in return, you get a regular stream o f interest payments until the borrower returns your loan in fu ll (i.e. the bond's term). When rates go up, this has less o f an impact on short and medium term bonds (bonds w ith terms between 1 to 5 years). The simple explanation is that lenders and borrowers only need to accept the lower interest payments for a shorter time. So the recent interest hike had less of an impact on this group o f bonds. B o n d s P la y a U n iq u e a n d I m p o r t a n t R o le It's important to understand that bonds, like other asset classes, have a specific role in a portfolio. Whereas equities are meant to provide the potential o f growth, the main responsibilities o f bonds are to provide stability to your portfolio. As equities and bonds tend to perform in opposite directions. That is, when equities are performing well, bonds are slowing down. Since market conditions change continuously, including a m ix o f equities and bonds into your portfolio helps to minimize the return fluctuation in your portfolio. This is particularly important for the investors nearing retirement who need more stable and consistent returns. ANIMAL TALES BIRD OF PREY Monica S im pson/Photo A Cooper's hawk rests on a fence in Glen Abbey. Please send your animal photo snapped in Oakville to cohara@metroland.com. Please provide a brief caption explaining the photo and the name of the photographer for publication. A t f i r s t g la n c e e v e r y t h in g lo o k s f i n e , b u t i f y o u l o o k c lo s e ly y o u w i l l s e e i t i n h e r e y e s . Forty years has taught us to see things differently. Abuse isn't just physical. For 40 years, Halton W omen's Place has been providing the only safe haven fo r v ictim s of abuse in the Region. We play a critica l role in supporting women and the ir fam ilies - More than just shelter, we offer guidance, direction, respect and a means to thrive in a safer world . If you, o r someone you know, need help taking that step, we're a call or a click away. F o r m o r e p e r s o n a l f in a n c e t ip s , s ig n - u p f o r o u r f r e e N e s t W e a l th n e w s le t te r : l e a r n .n e s tw e a l th .c o m /n e w s le t te r / O Nest Wealth N EED H E L P N O W ? CALL OUR C R IS IS L IN E S: 9 0 5 -8 7 8 -8 5 5 5 I 9 0 5 -3 3 2 -7 8 9 2 o r V ISIT H A L T O N W O M E N SP L A C E .C O M Halton Women's Place ffoiMy RilrtiMihifi ' Hivtrty Crnmmtf/tt I W A N T TO S U P P O R T N O W . 905-332-1200 x222 I cbozzo@ haltonwomensplace.com 40 years has taught us that every little b it helps, please give generously. mailto:cohara@metroland.com mailto:cbozzo@haltonwomensplace.com Interest Rate Changed - Should Your Portfolio? Bonds Have Different Levels of Sensitivities Bonds Play a Unique and Important Role ANIMAL TALES BIRD OF PREY For more personal finance tips, sign-up for our free Nest Wealth newsletter: learn.nestwealth.com/newsletter/