What higher interest rates mean for the CPP and your future

Credit to Author: Staff Writer| Date: Mon, 19 Dec 2022 18:56:58 +0000

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After years of historically low interest rates, it’s getting more expensive for Canadians to borrow money. The Bank of Canada has hiked its key overnight rate several times so far this year.

While interest rate increases can benefit savers, higher borrowing costs also slow down economic growth. Consumers are less likely to go into debt to make a purchase, which causes businesses to be more cautious about raising prices. That’s why the Bank of Canada is increasing rates — to tamp down inflation.

“We’re seeing higher and more persistent inflation, with gas, food and housing at multi-decade highs,” said John Graham, President & CEO of CPP Investments in a speech delivered to the Canadian Club of Toronto in June. “We expect inflation to remain elevated in the near term.”

The value of diversification and a long-term view

Interest rates go up and down over time, and higher rates tend to drive stock and bond values down. CPP Investments, an independent, professional investment organization, whose mandate is to invest the assets of the CPP Fund with a view to achieving a maximum rate of return without undue risk of loss, (source: https://www.cppinvestments.com/about-us/our-mandate) is not immune to market volatility, but is equipped to meet this challenge. CPP Investments’ focus is on the long-term resilience of the Canada Pension Plan (CPP) Fund, and so it prepares for a wide range of market conditions.

It’s one of the reasons CPP Investments believes so firmly in active investment management, as opposed to a passive strategy that involves buying investments that track major indexes like the S&P/TSX Composite Index or the FTSE World Government Bond Index.

“We diversify across various asset classes and geographies, to mitigate concentrated risk and to deliver a stronger and more resilient portfolio,” said Graham.

Because of the active investment strategy, CPP Investments is better able to build and maintain an investment portfolio that is resilient over the long-term in the face of whatever market and economic conditions we are presented with.

CPP Investments employ experienced investment professionals from around the world who work together to make strategic decisions as conditions change. The CPP Fund is therefore not overly dependent on investment returns in any one country, currency or region.

“CPP Investments was built for times like this,” said Graham. “That doesn’t mean we’re immune to volatility in the markets, it means we’re well-positioned to weather the storm over the long term.”

Want to learn more about CPP Investments and your financial future as a new Canadian? Check back here for new content every month, or read more articles, access resources and watch videos at www.cppinvestments.com/commitment-to-canadians.

This content is provided for information purposes only. CPP Investments is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.

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