Meridian, Aviso Wealth advisor sees momentum building amid steady inflation
After months of cautious signals from central banks, Paul Shelestowsky, senior investment advisor at Meridian and Aviso Wealth, says the latest rate cuts have finally landed at the right time.
Speaking to Wealth Professional, Shelestowsky says that September’s rate cuts in Canada and the US provided some relief that monetary policy is trying to return to normal. And with tariff uncertainty easing and inflation stabilizing, he says there is a feeling that the recent cuts are at the right time to provide the much-needed relief.
But while institutional investors have largely welcomed the move, he notes that retail investors remain wary about the markets and the economy.
“There is a lot of questions like, ‘how long can this run go on for?,’ or ‘there has to be a crash coming?’ and they let their biases and short term views possibly cloud their decision making,” he says. “Institutional investors tend to understand that a falling interest rate environment usually bodes well for both stocks and bonds and usually are better at removing emotional barriers so that they can take advantage of the rate cuts.”
Helping clients overcome hesitation remains one of the toughest jobs for advisors, Shelestowsky says.
“This is a big challenge, since most investors feel very strongly about their emotions when it comes to their finances and investing,” he says. “The best thing advisors can do is to ask questions to determine where the hesitation is coming from. There are many biases that can be roadblocks, for example, Recency, Loss Aversion, Confirmation, Risk Aversion, and several others could be creating investment paralysis. Once you understand which bias (or combination) is at issue, you can work to help the investors move forwards.”
In this shifting landscape, income-oriented and defensive sectors could shine.
“Falling interest rates tend to help income-oriented defensive sectors, like energy, real estate and utilities,” he says, though he cautions that “once rates stop going down, bond returns tend to return to normal, low to mid-single digits.”
Some investors are still looking at GICs as options for renewing terms, but Shelestowsky says they must accept the fact that they will only be renewing at around 3% for 1 year, when at the recent peak they were around 5% for the same term.
“If that rate of return is enough to sustain them, then they may be willing to accept the lower rates,” he says. “Most investors are looking at alternatives to GICs in this environment, but the challenge is that they must accept that they would be moving from ‘no risk’ to low or low/medium risk to get the same kinds of returns they had in their maturing term. This would usually mean a diversified bond ETF or portfolio, or even a balanced fund skewed towards the bond weighting.”
With sentiment improving, Shelestowsky sees busy times ahead for the rest of the year.
“I think advisors should expect to see higher than average inflows of investments, as more GICs mature, and more cash on the sidelines see lower rates for ‘no risk’ products, investors will be looking to get their money working harder for them,” he says. “Add to that the possibility for further rate cuts, we need to be prepared for a lot of investors asking us what we think they should do with their cash. The best thing you can do is to educate your team on what those alternatives to GICs and cash look like for the coming months.”
