How Rising Interest Rates Could Affect Your Investment Portfolio

By Wong, Craig | The Canadian Press, September 28, 2017 | Go to article overview

How Rising Interest Rates Could Affect Your Investment Portfolio


Wong, Craig, The Canadian Press


Rising rates could affect your portfolio

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OTTAWA - The cost of variable-rate mortgages and lines of credit linked to the big bank prime rates have already gone up, but experts say the move by the Bank of Canada to raise interest rates may also affect your investment portfolio.

As interest rates rise, investments like real estate investment trusts and utilities, to which many investors have looked to provide a source of steady income, are expected to come under pressure.

"People aren't willing to pay as much for those sectors," said CIBC portfolio manager Craig Jerusalim, adding that REITs and utilities typically also have more debt which becomes more expensive to service as interest rates move higher.

The Bank of Canada has raised its key interest rate target twice this year, taking back the two cuts it put in place when oil prices plunged. Economists expect the central bank to continue to raise rates, but opinions vary about how quickly it will happen.

On the flip side, some industries will benefit from higher interest rates.

Jerusalim said the banks benefit when the Bank of Canada raises its key rate target because the higher rates help improve margins at the big lenders.

As expectations ramp up that short-term rates will rise, long-term interest rates should also increase and that will help insurance companies. Higher long-term rates help insurance companies when they calculate their future liabilities. …

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