Suggestions for fixed income

Hi Mat,

Thanks. I was looking at AQN and Fortis. I understand the difficulty in saying any stock is safe.

Have a wonderful holiday season - J

Hi Jacob,

The problem with stocks - they are by their very nature riskier than bonds or GICs. There is no stock that is completely safe, which is why those who choose to prioritize protecting their initial investment and have a lvery low risk tolerance will chose bonds or GICs.

That being said, looking to those companies who have a long history of dividends is the best course of action. Utilities come to mind as one of the 'safer' sectors and companies like foundational and bull list stocks Fortis and Algonquin make excellent dividend stocks. BAM is also another good one, but once again - I would not go out on a limb and say any of these stocks are 100% safe.

One can also make the argument for Canada's Banks. They have streaks of uninterrupted dividends for more than a 100 years - no one can lay claim to that level of dividend sustainability (at least not in Canada). Sure, they've had their periods of stagnation but have always paid out a dividend with a few exceptions (NA cut in the early 90s).

Bottom line, big blue chip companies are likely the best place. But as we've seen during the covid-19 crash, the financial crisis of 2009 and the dot.com bubble in the early 2000s, each market crash is slightly different and no sector has consistently outperformed in every market crash. Each one is unique.

Mat

Great question and answer. As I'm currently trying to rebalance my portfolio, I am also interested in this answer. As an alternative to bonds and GIC's would you be able to suggest some extremely safe stocks with small dividends where you could safely park some of your money? ie. BAM comes to mind for me but would love to hear your thoughts along with some suggestions.

You're definitely not overreacting. The bond market is risky right now, as bonds are naturally higher as interest rates are in the dirt.

This is a really awkward time to be investing if you're someone looking for fixed income. Because if you're someone who would be comfortable shifting away from bonds because of them trading at a premium, you'd naturally shift to stocks. Because again, dividend stocks are looking very attractive as rates are low.

But it can be said in that regard that stocks too are trading at a premium. So, where exactly do you turn? Difficult to say.

The typical methodology of a bond holder to avoid volatility was to simply hold the bond until maturity. However now with interest rates the lowest we've seen in a long, long time, it's very difficult to be either purchasing new bonds with extremely low interest rates, or purchasing bonds at a crazy premium and filing a big capital loss on maturity.

I'm not even sure what to tell you to be honest. Your points are all valid. Something like a GIC does not keep up with inflation right now. The best way to do so, is to invest in stocks. But I'm also not going to tell you that you should be going out and holding 100% equities, because if you're an investor who likes to add fixed income, you clearly wouldn't be comfortable with it.

One thing you could consider, and I'm not sure if you know these exist, is a floating rate bond. They tend to perform best when rates are low, and they perform even better when rates have dropped drastically. Floating rate is much like a variable mortgage, the interest on the bond will fluctuate. You'll make a lower rate now, but if your true fear is interest rates rising and devaluing your current bond, at least with a floating rate you'll benefit from the rise in interest.

Again, just a suggestion. I'm by no means a fixed income expert, as I don't spend too much time in the area being 100% equities.