Your Money: Inflation, interest rates and your investments
By Matt Solberg on October 15, 2022.
Many people might realize that a lot of things are now noticeably more expensive than they were before. This is inflation and the cause of this is the imbalance of supply and demand – high demand but low supply. Through 2020 and 2021 many people actually spent less and saved more and demand for goods and services started to build up. Meanwhile supply of these things that people want is constrained, due to things such as lower work force, higher transportation costs, and Geo-Political factors such as other countries policies on COVID. In attempt to correct this imbalance, the Government and Central Bank have minimal things they can do to fix the supply issue, but what they can impact is demand and they do this by increasing interest rates. What this is supposed to do is lower demand by giving people less disposable income – for example; a person pays more interest on their mortgage each year so they will think twice about paying extra for a product or service they want, but don’t necessarily need. How does this impact your investment? The impact is generally negative at first, but temporary. Corporations are still, and will continue to make profits, though their growth might not be as fast as in previous years, so good quality stocks will make money over the medium and long-term. Bonds will recover, and based on history, they should recover rather quickly – this should happen when interest rates settle in at a point where supply & demand are more balanced. It might be painful to look at your investment statements right now, but this will pass and your investments will recover. Though it’s important to review your portfolio to ensure you are well diversified and properly invested for your situation. Matt Solberg is a senior investment advisor for TD Wealth Private Investment Advice. For more information please contact me @ 403-504-2780 or email me at matt.solberg@td.com 8-7
