Interest Rate Hikes: Advice for Investors

Un jeune homme réfléchit

Rising interest rates are not something that can be avoided. So, the question is: is there anything investors can do to protect themselves from interest rate hikes and inflation when they happen?

In October of this year, the Bank of Canada, which is responsible for the country’s monetary policy and financial regulation, increased its key policy rate to 3.75% in an effort to quell inflation and avoid a recession.

What does that mean?

Well, one direct result of this measure is a noticeable increase in interest and mortgage loan rates.

This can mean that consumers who take out a loan will pay more interest on it or will be forced to borrow less to offset the rate increase or simply postpone taking out the loan until rates go down again.

Investment options

When it comes to investing, there are plenty of options.

Clearly, one of the most obvious options in an inflationary market are inflation-resistant assets. Gold has long been deemed an effective hedge because it tends to keep up with inflation, which is not to suggest that it keeps up with high or hyperinflation.

Savings plans like RRSPs, TFSAs and RRIFs could also be considered as a way to squirrel money away when interest rates go up. It makes sense because the natural reaction to rising interest rates is to not borrow.

Segregated funds are structured as deferred variable annuity contracts, which are contracts that allow the owner to accrue savings and defer taxes until withdrawal. They also include life insurance benefits. Since they tend to provide more modest returns, they can be a good options during high market volatility.

Guaranteed interest accounts are low-risk investment vehicles that guarantee the owner’s principal and accumulated interest. These are legal life insurance contracts, so they provide a death benefit and are protected from creditors in the event of bankruptcy.


What should you do?

Speak to a financial security advisor to determine your investor profile, diversify your portfolio, identify your goals and ultimately, make well-informed decisions.