Peace of mind through financial confidence

AFS Insights

Two Tips in a Low Interest Rate Environment

Whether you are borrowing or investing, low rates impact you

Every day we read stories in the media about the impact of low interest rates on Canadians.  It doesn’t appear rates will be rising any time soon.  So, what should we do?  Many of our clients are wondering how low rates will affect them over the short- and long-term.  Following are a couple of key tips to consider:

Review Your Savings Goals

Closely examine your retirement goals.  Prolonged low interest rates may indicate you should consider some of your other variables (e.g. when you retire, how much income to take, etc.).  Take a close look at your investment mix also.  Perhaps it’s time to adjust your mix of stocks, bonds and cash.  It’s important to be informed about your specific situation and seek the advice of a professional advisor.

You may need your retirement savings to last a very long time.  It’s essential you have a clear picture of where you are today and understand the implications of various scenarios going forward.  We use conservative variables in our analysis to ensure our clients reach or exceed their expectations.

Review Your Cash Flow and Debt Management

With low interest rates, it is tempting to borrow more than you normally would.  Be careful as this could be a slippery slope.  A solid financial plan includes some latitude for the unforeseen in our lives.  A recent report from TransUnion, a credit-monitoring firm, illustrated that some Canadians are maxed out with their borrowing.  A nominal rise of 0.25% would have a significant impact.  An increase of 1% would have a huge impact, with an estimated one million borrowers unable to meet their monthly payments.

Our clients often ask if it is worth paying down their debt when interest rates are so low.  Logically, it is important to eliminate high interest debt first (credit cards, other loans, etc.).  It is also important to have a plan for reducing long-term debt, such as mortgages.  By systematically reducing all debt, you build flexibility in your financial plan and greater peace of mind.

Take a close look at your income, expenses and (hopefully) surplus.  Then examine your debt.  Putting the two together results in a complete picture, and the ability to optimize your savings, cash flow and debt management.  Contact us for help with this area of your planning.