With interest rates likely peaking, investors should consider small tweaks to their portfolio to boost their returns, but "wholesale changes" should mostly be avoided, money managers say.
"While we may be getting closer to a peak in central bank interest rates, monetary policy (including quantitative tightening) is very likely to remain restrictive for some time. We always advocate for minor adjustments to clients' long-term asset mix, as opposed to wholesale changes," Rob Spafford, vice-president and portfolio manager at Cidel Asset Management, told Yahoo Finance Canada.
"It is 'time in the market', rather than 'timing the market' that will deliver long-term compounding of wealth."
Dave Brune, vice-president and portfolio manager at The Rae & Lipskie Partnership, agrees that investors should generally stay the course with their strategy because their "strategy has been cultivated for a reason" but says bonds are interesting again.
"With many investment-grade bonds trading at 5%, these may be worth considering in a diversified portfolio. Compounding money at 5% is nothing to sneeze at and the downside of a market downturn will be mitigated," he said.
Fixed income back in style
Fixed income investments have arguably been the biggest comeback investment story in this cycle of rising interest rates.
Money managers and investors have flocked back to the bond market and other fixed income securities such as Guaranteed Investment Certificates (GICs) as their yields jumped to levels comparable to equities, but with much less risk.
Tiffany Woodfield, associate portfolio manager at Raymond James' SWAN Wealth Management, says she prefers longer-duration bonds.
"The rising rate cycle has made the ownership of bonds much more palatable and profitable. This will be amplified if rates begin to fall," she said.
"Also, those that hold bonds outside of registered/exempt plans have tax relief since the additional gains achieved if a bond is sold at a profit are taxed more favourably than regular interest."
Bonds should fit into an investor's balanced portfolio of stocks, fixed income, real estate and alternatives, she says.
Stocks can boost returns but beware of risks
For investors who have a long time horizon and sufficient risk tolerance, having a strong tilt towards equities in their portfolio is "perfectly acceptable," according to Brune. He points out there are many quality dividend stocks that are yielding a healthy six per cent or more.