Silver Linings Suggest Better Days Ahead

With inflation raging, 2022 has the distinction of being a year in which “nothing has worked,” at least so far says The Harbour Group at RBC. Cash’s purchasing power has been eroded by rising prices, stocks have been volatile, and perhaps most challenging is that bonds have not provided their traditional role as ballast in the portfolio when equities are correcting, it says. Going back to 1980, stocks and bonds have declined together over a one year period only 1.4 per cent of the time, so this is “a rare occurrence indeed, but does portend better days ahead.” There are some “silver linings. First, much of the damage in markets has been concentrated in speculative investments that bear little resemblance to your portfolio. While it may not feel like it, high quality, dividend paying securities have generally outperformed.” As well, portfolio income is increasing in 2022 as companies have been boosting their dividends at a healthy rate, which has protected purchasing power, even though market values have fluctuated. “This is doubly true in the bond market, where the yields on offer today are multiples of what they have been in recent years, and as existing bonds mature and are reinvested, income will increase,” it says.