There was a time, way back when, when you could easily make an annual return of 16 per cent or more simply by signing up for payroll Canada Savings Bonds at work.

Are those days coming back, at least in part, now that interest rates on guaranteed investment certificates have topped the five per cent mark? Save with SPP took a look around to see what’s happening — for the first time in decades — in fixed-income investing.

A recent Wealth Professional article declares that “bonds are back.”

“After a long period in the unfashionable doldrums, fixed income has come roaring back with some tempting offerings that could be music to the ears of wealth managers,” writes Catherine Lafferty.

She quotes Macan Nia of Manulife as saying “a lot of the issues in the financial markets and for financial advisors was [around] this search for yield and how we drive income for our clients that are retiring. The good news is right now we simply clip the coupon. We believe they are attractive opportunities just in yield.”

OK, so bonds are suddenly a better investment. What about other forms of fixed income?

You don’t have to buy bonds (which pay interest, normally once or twice a year, until they mature) to benefit from today’s higher interest rates, writes Rob Carrick in The Globe and Mail.

Even a simple high interest savings account (HISA) can pay you “2.5 to 4.1 per cent right now,” he writes. A nice thing about HISAs is that your money is not tied up for a set period of time as it would be with a bond or guaranteed investment certificate (GIC).

There are now even exchange-traded funds that are basically an index fund of HISAs, Carrick notes.

“ETF HISAs offer after-fee yields around five per cent right now, but you may have to pay brokerage commissions to buy and sell,” he writes. There are also “mutual fund-style HISAs” that offer yields of 4.2 to 4.6 per cent, he continues.

The good old GIC is also looking more attractive, Carrick writes.

“If you have money to lock into GICs and want a great rate, now’s not a bad time to buy because there are 5 per cent yields available for terms of one, two, three and, in the case of EQ Bank, five years,” he writes. There are also cashable GICs — you can cash them in whenever you want — but those pay roughly one to 1.5 per cent less in interest, Carrick notes.

Equitable Bank’s Mahima Poddar tells Global News that the rise in interest rates has definitely rekindled interest in GICs.

“I do think we’re going to see more and more people going back to GICs,” she tells Global. There is a lot of downside risk these days to equity investment, she continues, with many people getting “burned.”

“When you compare that to a guaranteed five per cent rate with no downside risk, it becomes incredibly attractive,” she tells Global.

We have had several friends and family members over the years who prefer the lower risk of interest investing over the potentially higher returns from equities. Having lost a shirt or two on “can’t miss” fibre-optic network construction companies and the odd copper mining firm in the past, we must concede that risk is, well, pretty risky.

It’s probably safer to have a balanced approach, and that’s exactly how the Saskatchewan Pension Plan runs its retirement savings pool. The Balanced Fund is 41 per cent invested in Canadian, U.S. and International equities. On the interest side, bonds, private debt, mortgages and money market investments represent 30 per cent of assets. The rest of the fund is invested in what are called “alternative” investment such as infrastructure and real estate. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

A look at the best of the Internet, from an SPP point of view

Taking debt to the grave – reverse mortgages catching on

What can you do if you’re old, not working, and don’t have enough income to make ends meet?

Well, according to the Edmonton Journal, one option – if you are also a homeowner – is the reverse mortgage.

“If you’re 55 or older, you can borrow as much as 55 per cent of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair,” the article explains.

In the article, Equitable Bank spokesman Andrew Moor says reverse mortgages are a booming market. “We’ve only been in this market for the past 18 months, but applications are jumping,” he states. Moor tells the Journal that he expects the market will grow by a whopping 25 per cent annually. “Canadians are getting older, and there is an opportunity there,” he states in the report.

The article notes that the explosive growth in reverse mortgages demonstrates “how some seniors are becoming part of Canada’s new debt reality. After a decades-long housing boom, the nation has the highest household debt load in the Group of Seven.”

Critics of the growing sector warn there can be downsides. Reverse mortgages “are a high-cost solution that should only be used as a last resort,” the article says, quoting industry experts who worry about the practice.

“When they think of their cash flow, they’re not going to get kicked out of their house, but in reality, it really has the ability to erode the asset of the borrower,” states Shawn Stillman of the Mortgage Outlet in the Journal article.

Another thing that can happen is that your home may continue to appreciate in value during the period of the reverse mortgage – so you will miss out on growth, the article states.

The sector has grown to an incredible $3.12 billion, the article notes. That’s more than double what the balance was on reverse mortgages just four years ago, the story reports. And while reverse mortgages are a relatively small sliver of the overall $12 trillion Canadian residential mortgage pie, the reverse mortgage share is up 22 per cent in the last year, the article reports.

Let’s think of what this means in the overall retirement savings picture. Canadians are grappling with high debt, largely caused by the high price of housing. This debt is a savings restrictor – there often isn’t money left over to put away for retirement. Good workplace retirement plans are scarce. So we shouldn’t be surprised to see some folks, unable to make ends meet on government retirement benefits, having to cash in the value of their homes.

The reverse mortgage trend underlines the need we all have to save for retirement on our own – whether or not we have benefits for retirement via work. The cost of living rarely, if ever, goes down, so money tucked away today and invested over time will be very handy in your costly future. An easy way to get going on retirement savings is through membership in the Saskatchewan Pension Plan. It’s open to all Canadians, and offers low-cost, professional investing to grow your money, and a full-service annuity program to convert those savings into retirement income once you’ve slipped the bonds of work. You owe it to your future self to check them out today.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22