2022 was a challenging year for international investors from a portfolio valuation perspective as well as for those who needed to or were forced to sell positions during the year. Both stocks and bonds declined appreciably in value as the combination of unprecedented interest rate increases by major global central banks to combat high levels of inflation and Russia’s war in Ukraine dented investors’ sentiment and appetite for risk taking. U.S. equities, for instance, recorded their worst annual performance since the global financial crisis of 2008.

He’s making a list. He's checking it twice. He’s going to find out who’s naughty or nice… The following investment behaviours or practices will not only land you squarely on Santa’s naughty list but they will also lead to less than optimal performance of your investment portfolio.

Naughty investment practices

Inflation generally refers to the rate at which prices of goods and services in an economy increase. It affects a country's economic development both positively and negatively. While excessive inflation leads to economic loss, controlled inflation is necessary for economic growth. All investors should try to understand the impact of inflation on their bond portfolio. Rising inflation occurs when the prices of goods and services keep increasing due to various reasons such as high demand, low supply, decreasing purchasing power, etc.

By far the most frequently asked question we get about bonds is: what is the difference between the yield on the bond and the interest rate on the bond? Today we TRY to demystify this source of universal confusion. The article contains examples for illustration purposes only and statements that are generally true; but to which there are always exceptions. Before we begin, it helps to remember the following:

Last week my colleague Dwayne highlighted the importance of reviewing your portfolio. As he mentioned, a “set it and forget it” approach does not truly allow an investor to maximize their portfolio returns. Ignoring your portfolio and not rebalancing is akin to never servicing your car. Eventually it will break down. This week, I want to share with you one of the important steps in reviewing your portfolio, which is diversification.

Gone are the days when an investor could take a “Set it and forget it” approach. Or perhaps those days never really existed, but investors were comfortable with their returns and saw no need for a periodic review of their investments or rebalancing of their portfolios. One would simply invest funds and leave the investment until maturity. This approach may have provided investors with what they considered acceptable returns but would not have maximized the earning potential of their portfolios.

Many bonds are issued today with a call feature which means they can be redeemed or repaid by the issuer prior to their scheduled maturity date. However, the early redemption of a bond is not automatic and highly depends upon the unfolding of events at the issuer level, specifically, and market conditions in general. In other words, an issuer or borrower will decide to call its bonds if it is in its best interest to do so.

When thinking about our financial future, we usually think about planning for ourselves- our retirement, our children’s college education, but have you planned for your parents? If they have not properly planned for their future, when they retire or get sick you could find yourself taking care of them as well as yourself. This could derail your financial plans, possibly creating a vicious cycle where you in turn end up being financially dependent on your children.