As the yield curve remains inverted, there are a lot of questions surrounding the best investment options in the current market. While many may believe CASH is the logical choice due to its higher yield, it’s important to understand the predictions for the future of short-term interest rates. It’s been suggested that interest rates for CASH are expected to fall below that of bond yields in the near future. Hence, picking the right investment is not as easy as just picking the highest yield option.
One investment option worth considering is VAB. The yield-to-maturity of VAB is 4.2%, which can be expected as a baseline return. It provides a locked-in interest rate, which makes it beneficial if rates drop, but not if they rise. VAB can also be helpful if you want more consistent returns over a longer time frame. Additionally, bonds tend to appreciate when stocks drop, making it an excellent part of a balanced portfolio.
When choosing between different assets allocations, VGRO provides some fixed-income allocation, while VEQT is 100% equity. One could also prefer CASH over bond ETFs if they believe central banks are not cutting interest rates any time soon. The best way to predict Canadian rates is by looking at 5-year bonds that have been trending down, indicating the lessening chances of a rate hike. The USD is currently weakening while the CAD is heavily influenced by oil prices.
It’s important to note that as inflation affects rate decisions, the outcome is not always easy to predict. One could find analysis on what the market has “priced in” to help make more informed investment decisions. While there is a lot of uncertainty surrounding the current market, having some “CASH” on hand with good liquidity can be beneficial if you want to dollar-cost average into VEQT.
Overall, it’s essential to take into consideration all the factors affecting the market before investing. Educating oneself on the market and the potential outcomes is the best way to make an informed decision. While there is never a guarantee, it can help ensure a better outcome.
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Author Eliza Ng