Are you wondering where to invest $2,000 right now?
If so, you’re asking a wise question, because the markets have changed a lot since two years ago. Back in 2021, interest rates were low and tech companies were growing their earnings at a furious pace. In that environment, the question of what to buy was a no brainer:
Growth stocks, of course!
Today, however, the economic situation is a little different than before. Interest rates are actually pretty high right now (about 5% on the Bank of Canada level, 7% for mortgage holders), and the kinds of investments that thrive in these conditions are different from those that would be preferred amid 0% interest rates. In this article, I will explore some investments that can do well in the high-interest world of 2023.
Treasuries
Treasuries are logical assets to invest your money into in 2023. These are bonds issued by federal governments. Canada issues them; the U.S. does, too. You can buy U.S. treasuries directly in small increments on treasury direct, or through your brokerage. Canadian treasuries are a little harder for retail investors to invest in directly. You need to buy in lots of $5,000, minimum, which may be a larger amount than you’re hoping to invest. If you want to invest less than $5,000 into treasuries, read on, because the next section of this article is about an asset that is nearly identical, but much easier to invest in.
Guaranteed investment certificates (GICs)
Guaranteed investment certificates (GICs) are long-term deposits offered by Canadian banks. Their yields tend to be heavily influenced by treasury yields. Most of the time, whatever yield is available on a one-year Canadian treasury is also the yield on a GIC of the same term to maturity.
GICs are extremely easy to buy. You could just call your bank and buy one right now. If you have a brokerage account, you can also buy and sell GICs on that platform. This method might be preferable to buying GICs directly from your bank, because it gives you the option to pick and choose from among different GICs issued by different banks.
Lenders
Last but not least, we have shares in lenders. These are somewhat similar to treasuries and GICs, in that they pay more the higher interest rates go. The difference is that these companies are equity investments, so their dividends can grow over time.
Consider First National Financial (TSX:FN), for example. It’s a mortgage lender that – unlike banks – does not take deposits. This spares it the usual liquidity problems that tend to be such a headache for banks. As you may have noticed, bank stocks have been going down all year despite their earnings rising. It’s because there was a banking crisis this past spring, which saw several regional banks collapse when they were left without adequate liquidity during bank runs.
First National doesn’t have to worry about deposits like banks do, so it’s arguably safer. The company certainly delivered good results in its most recent quarter, with revenue up 26% and earnings up 41%. As long as rates remain high, FN will keep collecting ever higher amounts of interest on existing loans. A perfect company for these turbulent economic times.
