Rob is taking a much-deserved break this week. While he’s away, we’ve collected his most popular stories from the first six months of 2022. They touch on some of the year’s pressing issues, from rising interest rates to the housing market to what qualifies as a smart investment in these turbulent times. – James Cowan, Investing Editor
Are you prepared for the pandemic wealth boom to blow up in our faces?
“The pandemic has for now settled down to a point where it appears we can live a mostly normal existence again. But in the financial world, we are heading into a period of disruption like we haven’t seen since the 1980s and 90s.
A quick summary of what’s happening out there: Inflation has reached the highest level in three decades, interest rates are soaring, oil prices are sky high, stocks are wobbling precariously after an epic two-year rally and the overheated housing market is losing momentum. Some of these trends may worsen, while others improve.
But it’s already clear that the worst money mistake you can make right now is to assume that what worked in the past two years will keep going.”
With interest rates soaring, these cherished personal finance rules are invalid
“Whether you’re buying houses or vehicles, the affordability measure preferred by most people is the dollar amount of the monthly payment. When interest rates are stable, this approach works well enough. But as we’re seeing in 2022, payments can get uncomfortable in a hurry.”
A 17-pack of dividend-growth stocks for investors who want to flip the script on inflation
“Fight inflation by investing in it.
If you’re paying more for gasoline or diesel fuel, invest in energy stocks. Price hikes in retail stores mounting up? Put some money in companies that sell the things you buy.
Let’s refine this idea a bit: Focus on dividend-paying stocks because their quarterly cash payouts will help you offset rising living costs. And within the dividend-paying universe, emphasize companies where we can anticipate a higher cash payout in the next 12 months. Financial solidity is important, so put a premium on companies with manageable debt loads and strong profitability.
All of these factors were built into a screen of stocks listed on the S&P/TSX Composite Index by Morningstar CPMS. The result is a list of 17 dividend-paying companies in sectors that include energy, utilities, consumer goods, telecom and others where inflation is an issue for consumers.”
Who should worry about the wave of rate increases this year, who shouldn’t and what every stressed-out borrower should do right now?
“Almost four in 10 mortgage holders are going to receive a crash course in the economics of rising interest rates.
They’ll have to renew their mortgage during the next two years, which means they’ll be exposed to the most substantial interest rate increases in decades. Their payments will likely rise on renewal, which means adjustments in their household spending.
This statistic is offered not to scare you, but rather to show how nuanced the interest rate threat is. Just over half of mortgage holders will renew in between two and five years. Many of these people will find rates coming down from peak levels by the time of their renewal, which means they’re under no immediate threat.”
Across Canada, renters are now saving hundreds of dollars over owning
“A lot of popular assumptions about housing are falling apart right now. For example, we now see that housing isn’t insulated from broader economic trends. This seemed to be true when prices increased well in excess of income growth, but no longer.
Another assumption is that low interest rates were a permanent feature of our economy. We had a dozen years of marvellously low borrowing costs, but the pandemic has created spectacular disruptions in the economy that are pushing rates steadily higher.
The idea of rent and home ownership costing the same on a monthly basis has also been cancelled, but then it never stood up to close scrutiny. Renters pay rent, and they’re done. Owners make their mortgage payments, plus property taxes and costs for upkeep and improvements.”
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What Rob’s been writing about
- Rising interest rates have juiced annuity payouts
- Cutting spending to deal with higher mortgage rates and inflation is a dead end – try getting a better job instead
- Can we stop hating bonds long enough to look at how much higher yields are?
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick: – H6
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where's the happiness? • Who should and shouldn't worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don't make this potentially costly assumption about the CPP Survivor's pension
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick