A bull market for savers and conservative investors is slowly coming to an end.
We’re talking about 5 per cent returns on savings and investing products with minimal or virtually zero risk of losing money. At 5 per cent, you’re comfortably above inflation, and not much below the average annual return of a balanced portfolio after fees. Five per cent returns look less appealing on an after-tax basis in non-registered accounts, but you can fight back by using a tax-sheltered registered account.
You can still get 5 per cent returns on safe money, but availability is dwindling. Here’s a roundup of the options available as of mid-March:
One-year GICs
Returns of 5 to 5.45 per cent for one-year GICs remain plentiful from alternative banks. If you need something low risk to put in a first home savings account this year, a 5 per cent GIC is a thought. Note that 5 per cent rates are available both directly from alternative banks and through online brokers that sell third-party GICs. To a limited extent, big banks are still offering special 5 per cent rate deals. Canadian Imperial Bank of Commerce had a one-year 5 per cent special on this week, while Bank of Nova Scotia offered 5 per cent for 17 months. Tangerine, owned by Scotiabank, had a rate of 5.2 per cent late this week for one year and some shorter terms.
Outlook: One-year GIC rates appear to have some stickiness for now, but that could change if the Bank of Canada cuts its overnight rate or inflation suddenly falls hard.
Two-year GICs
Several alternative banks offer 5 per cent or a bit more for two years, but you’ll have to deal with them directly. Online brokers have little to nothing at 5 per cent or more in their inventories for people looking to lock up money for two years. The best two-year rate at one broker was 4.94 per cent.
Outlook: Grab ‘em while you can
Money market and T-bill funds
A continuing anomaly in financial markets is that short-term interest rates are higher than longer term rates. Long-term rates are supposed to be higher because of the additional time commitment and risk investors take on when buying them, but economic weirdness has turned this rule upside down. Government-issued treasury bills and short-term corporate borrowings are an ideal way to capture the best rates today. That’s why T-bill and money market exchange-traded funds have yields these days at or just a bit higher than 5 per cent.
Outlook: Short-term rates will decline once investors are confident that the war on inflation is won. Sometime this year, most likely.
Corporate bonds
Five per cent yields have pretty much dried up unless you’re willing to take on a term of seven or more years. For terms of five years and less, the best one online broker could offer was a couple of real estate investment trust bonds with yields in the high 4 per cent range. Bumping up the term to seven years produced exactly one offering - an InterPipeline bond maturing in November 2031 with a yield of 5.2 per cent. This is a somewhat lower quality bond with a BBB-low rating.
Outlook: 5 per cent yields from investment grade bonds are going, going…
-- Rob Carrick, personal finance columnist
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Stocks to ponder
HelloFresh SE (HELFY-OTC) The company needs to cut costs and stem an exodus of meal-kit subscribers to boost profits and revive its share price, according to investors and analysts, who remain to be convinced by a plan to expand its fledging ready-meals arm. The German meal-kits maker, whose stock trades over the counter in North America, shocked markets this month with its second profit warning in five months, citing higher marketing expenses and the cost of ramping up its ready-to-eat business.
Reddit The company this month is poised to reach the stock market in one of the first tech initial public offerings of the year. Its move stands out. Unlike a recent crop of startups that are focused entirely on artificial intelligence, the 19-year-old company is a throwback to an earlier era of social media. It is also trying to go public at a time when investors have been skeptical of tech offerings. But as the New York Times points out, what stands out the most is that Reddit is able to go public at all.
The Rundown
Lack of private-sector investment is at the heart of Canada’s economic, stock-market mediocrity
Over the past year, the TSX has deeply underperformed U.S. stock benchmarks, closely tracking the widening gap between the two countries’ economic growth readings. On both fronts, Canada is growing at about one-third the U.S. pace. Tim Shufelt reports that at the heart of Canada’s economic and stock-market mediocrity is a lack of private-sector investment.
Looking for a TSX sector that will outperform? This is it
Canada’s uranium companies are looking attractive, as they are set to benefit the most as the demand for uranium outpaces supply in the medium term, say economists Atakan Bakiskan and Dylan Smith of Rosenberg Research. They think nuclear technology developers and operators in the country will also emerge as winners as domestic investments in nuclear capacity and global demand for reactors pick up.
For Wheaton CEO, Bitcoin cannot be the ‘new gold’
Among the beneficiaries of a rising gold price – which is off to a strong start in 2024, hitting a record high earlier this month – is Wheaton Precious Metals Corp. (WPM-T). The company has a seasoned management team, strong cash flow generation, a healthy balance sheet, predictable costs, a rising dividend and robust growth anticipated. Jennifer Dowty spoke with Wheaton’s chief executive officer, Randy Smallwood, to gain his insights on the company’s successful business model, his precious metals outlook along with his thoughts on Bitcoin.
Also see: Bitcoin’s rally resurrects flaky theories from the last bull run – like calling it ‘property’
Others (for subscribers)
The highest-yielding stocks on the TSX, plus risk data
Monica Rizk: What the charts say about where the S&P 500 and TSX are heading next
Canadian ETFs: The latest launches and terminations as investors shift into U.S. equities and bitcoin funds
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Number Cruncher: Six oil stocks with sustainable dividends
Number Cruncher: These smart beta ETFs have outperformed their peers
Insider Report: Chairman invests $1-million in this dividend stock with a unanimous buy call from seven analysts
Ted Dixon: Insiders buy as SNC-Lavalin rides the infrastructure and nuclear waves
Globe Advisor
Why this money manager says inflation risk is far from over
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What’s up in the days ahead
Are complex companies easy targets for short-sellers? David Berman will share some thoughts. Plus, John Heinzl will look at the latest investment case for H&R REIT.
New kid, old block: World market themes for the week ahead
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Compiled by Globe Investor Staff
Rob Carrick