As the sun peaked to the Summer Solstice, so too did many markets shake off the mixed results of May’s “sell and go away” mentality, returning a strong performance heading into the official summer months.
Of worthy note this month is the further interest rate hikes by five prominent Western central banks, which came on the heels of rate increases by two other Western central banks in May. I know that for many people the prospect of assessing interest rates borders on levels of excitement reserved for watching paint dry. But the implications to both investments portfolios and bottom-line wealth cannot be ignored. Besides influencing the price of money and purchasing power, interest rate changes can also wreak havoc on investment positions.
Consider the current interest rate reality, as of the end of June: (1.)
Central Bank Current Rate Last Time This Rate Was Seen
Bank of Canada 4.75% May 2001
Federal Reserve 5.25% January 2001
Bank of England 5.00% April 2008
European Central Bank 4.00% September 2008
Swiss National Bank 1.75% October 2008
Reserve Bank of Australia 4.10% April 2012
Reserve Bank of New Zealand 5.50% October 2008
Is it not worth noting that Canada and the US have not had such “high” rates for over 20 years? Not as long in the tooth are the other central banks, with their rates last scene window ranging in 11-15 years. To some younger investors, this is not easy to fathom as it comes from a time before yours. But even for the more seasoned investor, investing into rates not seen for such a long time takes getting used to.
To boot, the swing of the long-term bottom rates was not relatively gradual. For instance, in both Canada and the US, a mere 18 months ago, the rates were bottom feeding at 0.25%. Across the pond in the UK, the low rate of 0.10% was still prevalent 18 months ago, while the European Central Bank began moving its bottom rate of 0% just last summer. That’s more than a whipsaw change! And yet, markets continue to mostly move along, as if there’s nothing to see here.
For those who continue to hold on to the “ideal” 60/40 portfolio cooked up by Wall Street, it’s likely bond allocations have been burned to a crisp in this same 12-to-18-month time period. Bond values have been decimated as interest rates rocket higher. And investors with advisors refusing to expand their philosophy beyond the “60/40” strategy have been left scratching their heads. Yes, 100% allocation to stocks over this long-time horizon would have scored some nice returns, but not without stomach churning drops scattered throughout, which most mom-and-pop investors could not cope.
Such volatile and uncertain investment markets now need money management that’s beyond the conventional thinking of ivory tower advisors spouting Wall Street mantras. Each investor merits guidance that is unique, insightful and impactful, regardless of the dollar amounts to be invested. If this follows your line of thinking, lets connect and we will exhibit how we are better positioned to invest and conserve your money so you can enjoy and share it long into the future.
All My Best,
Adrian Harasymiw Investment Advisor Pinnacle Sovereign Investments of ACPI
P.S. To review the June market numbers or download a PDF copy of this commentary, check out the Monthly Market Pulse page on our website.
(1.) Investing.com