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By Dale Roberts, Retirement Club/Cutthecrapinvesting
Special to Financial Independence Hub
Bonds may be the adult in the room, but they are certainly afraid of inflation. Bonds usually do their thing: they go up when stock markets get hit hard. They provide ballast. During periods of expected high inflation, or during rising inflation bond prices go down. That can create and contribute negative returns. The bonds can contribute to a portfolio decline.
But not all bonds are the same. Ultra-short bonds carry no price risk, while long-term bonds can carry extreme price risk. It’s crucial that investors understand the ‘types of bonds.’ To intermediate- and long-term bonds, inflation is Kryptonite. How do we battle that force?
As always, the following is not advice.
As a refresher, be sure to have a read of: Stocks are the unruly kids. Bonds are the adult in the room.
Too funny, a rare case when Cut The Crap Investing actually ranked high on search.
Inflation up. Bonds down.
Bond yields rise during inflation primarily because investors demand higher returns to compensate for the reduced purchasing power of future fixed interest payments. Furthermore, inflation often prompts central banks to raise interest rates, which directly drives up yields, while existing bond prices fall to align with new, higher-yielding securities.
As interest rates rise due to inflation, new bonds are issued with higher coupon rates to attract investors. Existing bonds, which pay lower interest rates, become less attractive and must drop in price to remain competitive, which simultaneously increases their yield.
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We’ve had some recent experience with the inflation scare of 2021 and into 2022. The bond market (XBB-T) experienced one of its worst performances in 2022, losing around 11% or more as inflation surged, reversing a four-decade bull market in fixed income.
In the above chart we see that bonds provided no ballast. Quite the opposite. That said, we have to keep in mind that bonds have done their thing in every major recession. They stink the joint out, one time, and investors turn on them.
Traditional global stock and bond portfolios have delivered wonderful returns …
Inflation fighters and the all-weather portfolio
In mid-March we had a refresher on what works during inflation with: How do we defend against stagflation?
If you have dedicated inflation fighters in the portfolio you’re not too worried about bonds delivering negative returns. We know that stocks don’t always go up. It’s the same for bonds.
In the following chart, we’ll start in 2021. Markets think ahead, of course, and enough investors loaded up on inflation-fighting assets as inflation storms gathered in 2021. The Purpose Real Asset ETF (PRA-T) is a nice one-stop inflation-fighting shop.
PRA-T was up 23.5% in 2021 and 15.9% in 2022.
Add 20% PRA-T to 80% XBAL-T and we have annual returns over 10% with no negative years from 2021 through 2023.
Continue on into 2026 and it gets even better. PRA-T is up almost 16% in 2026.
Go short and clip the inflation price risk
Ultra-short-term government bonds (CBIL-T) do not carry price risk: they are cash-like. In fact, they will provide greater and greater income as inflation expectations and yields rise.
The 5-year government bond can be a good predictor of where the bond market and mortgage rates are heading. We’re moving on up. Where she stops, nobody knows.
So, we’re having bad days for longer-term bonds and good days for shorter-term bonds. For retirees cash and GICs are a great place to store and protect your near-term spending needs. You might also use intermediate- and longer-term bonds if you want those shock absorbers for your equities.
Check out the GIC rates at EQ Bank
I separate those tasks within our portfolios, using CBIL-T for cash and XBB-T intermediate-dated bonds. The effective duration for XBB-T is about 7 years. A duration of ~7 years means that if interest rates rise by 1%, the fund’s value would be expected to fall by approximately 7%. We have used GICs as well over the last several years.
For U.S. Dollar accounts I use UBIL.U and AGG.
And yes you can consider inflation protected bonds (TIPS).
When I trim winners (rebalancing) I move the proceeds to both bond baskets and at times, to defensive equities.
Where to find those bond ETFs
You can use this ETF screener for Canadian ETFs and this ETF Database for U.S. ETFs.
And here’s some ideas on putting your cash to work in Canada. In that post you’ll find links to the best current savings and GICs rates available in Canada.
Feel free to reach out with any questions in the comment section, or use Contact Dale to send a personal message.
The week in review
For the week ended March 20, just as we have seen in February, it was energy that worked, that’s it.
Sometimes when the market pukes, it pukes up everything. Of course, cash has ‘worked’ as well.
The Canadian energy market had a fabulous week (in late March).
And cash …
With an all-weather portfolio, there’s always something working. That can help mathematically and emotionally.
The Sunday Reads
At Findependence Hub, how Fritz Gilbert of the Retirement Manifesto spends his time in retirement.
We’ll check in on Dividend Hawk’s portfolio activity for the week.
At Stocktrades Dan asks if this popular blue chip Canadian stock is losing it …
We own that stock by way of iShares consumer staples XST-T.
At Tawcan Bob interviews a reader who is doing some pre-retirement planning. That reader has more than they will need. It will likely be an exercise in creating a retirement cash flow plan that protects while seeking a robust and efficient gifting strategy.
And here’s Rhys on Canadians thinking (on average) that they need $1.7 million to retire.
On that front I ran some numbers at MayRetire.
Thanks for reading and watching. Please leave your thoughts and ideas in the comment section. Touch base by way of that Contact Dale button.
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Dale Roberts is a former advertising writer and creative director and long time index investor. In 2013, he followed his passion to become an investment advisor, and then trainer at Tangerine Investments. He won Advisor of the Year in his first year. He left Tangerine in 2018 to start Cut The Crap Investing, where he helps investors learn how to use ETFs, simple stock portfolio models and Robo Advisors to full advantage in the accumulation stage, and especially in retirement. A ‘hyper-focuser’ Dale has spent thousands of hours studying retirement – from the financial planning aspects to the portfolio models that make it happen. Early in 2025 he co-founded Retirement Club for Canadians, described in this Findependence Hub blog. Keep in mind Dale is not a financial planner. Retirement Club provides ideas and learning for consideration. As we know, self-directed investors are responsible for their own investment decisions. This blog originally appeared on his site on March 22, 2026 and is republished with permission.
