Market Watch with Tom Waitt

July_28th_2010.mp3 Risks of Rising Rates    Investors have been disappointed with the performance or lack of performance of their mutual funds. Equity markets despite volatility have not been friendly to the buy and hold mentality. Many investors are jumping out the frying pan and into the fire of rising interest rates.   Bank of Canada Interest Rates (click for larger picture) Frustrations from 10 years of underperformance have seen many investors lock in a fixed rate at near record lows. A Government of Canada 30 year bond yields 3.79% today. Historically through thousands of years it has been found the normal rate of interest is 7%. If we move to that level a 30 year Government of Canada bond will lose 40% of their principal value. In 1981 some will remember the Canadian prime rate reached 23% and fell as low as 2.25% and is currently 2.75%. Many conservative investors could find their savings tied up in bond funds in the wrong place at the wrong time as rates rise further.