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Real Return Bonds and Inflation

What if you have a fixed income product, but the price of goods and services goes up? All things being equal, you have to make do with less.

There are several diversification strategies available to investors to counteract the effects of inflation, including using Real Return Bonds (RRBs).

They were introduced by the federal government in 1991 as way to shelter Canadian investors against the ravages of inflation. Unlike conventional bonds, these bonds pay the investor a rate of return that is adjusted for inflation. In this way, RRBs address two of the primary risks of investing in bonds: credit quality and the erosion of purchasing power.

Why consider diversifying a portion of your savings into RRB mutual funds?

In late 2008 and early 2009, governments around the world fought the recession by pumping nearly $12 trillion into the global economy. The “financial stimulus” programs aimed to increase employment by spending on infrastructure, and stabilize credit markets by rescuing some of the world’s largest financial companies. While the stimulus spending appears to have worked as far as avoiding a second Great Depression, many leading economists believe that the flood of money injected into the system will eventually trigger inflation. If inflation happens, RRBs may help you to protect your purchasing power.

Your financial advisor is in the best position to determine whether allocating a portion of your savings to RRBs is appropriate. To learn more about RRBs click here.