Poll reveals Canadians, especially baby boomers, don't know rising rates can hurt their investment portfolios for retirement
TORONTO, Jan. 24, 2014 /CNW/ - A new poll from CIBC Asset Management by Leger finds that almost 60 per cent of Canadians with a retirement portfolio are unaware that rising interest rates can erode the value of some of their investments. And, those investors closest to retirement - the "baby boomer" generation between the ages of 55 and 64 - are particularly in the dark, with 65 per cent unaware of the impact of rising rates.
Rising rates can negatively impact investors who own bonds or fixed income securities because when interest rates rise, bond prices fall. An extended period of falling interest rates, and a flight to safety from equity market volatility has resulted in many Canadians investors loading up on bonds in recent years. But, most experts agree that this era of record-low interest rates has reached an end.
Key poll findings include:
- 58 per cent of Canadians are unaware that rising rates will cause some investments to lose value, with that number climbing to 65 per cent for baby boomers (55-64 years of age - a demographic typically with a higher percent of fixed income assets), and;
- 54 per cent of Canadians are not thinking about changing their retirement savings strategy in a rising interest rate environment, with that number climbing to 62 per cent for baby boomers.
"Nobody knows exactly when and how fast interest rates will rise, but Canadians need to understand the risk this poses to their retirement funds and plans," said Steve Geist, President, CIBC Asset Management Inc. "Canadians understand the impact that rising rates have on household expenses, such as mortgages and loans. But, it's equally important for Canadians, especially those approaching retirement and preparing to draw income from their portfolios, to be aware of the impact that rising rates can have on their investments."
Strategies for investors to prepare for rising rates:
- Work with an advisor to find the right fixed income mix: The fixed income market is complex and a financial advisor can help you assess your portfolio and understand its overall sensitivity to rising interest rates. Fixed income will remain an important part of investors' overall portfolio mix, however diversifying into corporate bonds could be a favourable strategy in a rising rate environment. An advisor can help you find the right mix for your financial goals.
- Consider "floating rate" investments for additional rising rate protection: Unlike typical bond investments, the interest on floating rate loans rises with benchmark rates. CIBC Asset Management recently introduced an investment solution that provides Canadians access to this unique asset class.
- Look at shorter bond durations: Duration is a measure of how sensitive the price of a bond is to changes in interest rates. The shorter the length of time for a bond to reach maturity, the less interest rate risk is involved. Portfolio managers will often use this strategy as one way to mitigate risk in actively managed mutual funds.
The poll was conducted by Leger through a Web survey in December 2013 among a representative sample of 1,503 English- or French-speaking Canadians, 18 years of age or older, who have an investment portfolio for retirement. Using data from Statistics Canada, the results were weighted according to gender, age, region, language spoken at home, education and whether or not children are present in the household to ensure a sample representative of the entire population under review.
About CIBC Asset Management
CIBC Asset Management (CAM), the asset management subsidiary of CIBC, provides a range of high-quality investment management services and solutions to individual and institutional investors. CAM's offerings include: a comprehensive platform of mutual funds, strategic managed portfolio solutions, discretionary investment management services for high-net-worth individuals, and active portfolio management for institutional clients. CAM is one of Canada's largest asset management firms, with more than $90 billion in assets under management as of Dec. 31, 2013.
SOURCE Canadian Imperial Bank of Commerce
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Canadian investors unprepared for the impact of rising interest rates: CIBC
Jan 24, 2014, 04:00 EST