You are: In your 50s, actively saving and also paying down a mortgage.

If you are contemplating selling your bonds in favour of stocks because of concerns that rising rates will hit fixed income investments, then think twice. Stick to your financial plan, because modest interest rate hikes do not justify changes in your asset allocation, says Peter Andreana, a financial planner and partner at Burlington, Ont.based Continuum II Inc. “Markets don’t dictate asset allocation models. People do,” says Andreana. “Recommendations change, when a client’s risk tolerance, circumstances and goals change. Then we look at the backdrop, and ask, ‘Should we make any changes?’”

The danger with making a drastic change in your portfolio’s asset allocation mix in your mid-to-late 50s and shifting a sizeable chunk of assets from bonds into equities, for instance, is that you may not have enough time to recover should equity markets plunge. “A change in assets needs to be based on a financial plan,” says Andreana. “Does it make sense on the whole? Don’t look at interest rates in isolation.” As a consequence, it’s advisable to monitor your asset allocation on a regular basis. “If my needs and goals haven’t changed, I need to rebalance my fixed income portion, so that I stay at that 60-40 mix,” says Andreana. “It’s all about staying on top of the asset mix.”

If you are a conservative investor and have a mortgage and higher rates are on the horizon, it’s wise to pay down that mortgage, recommends Ted Rechtshaffen, president at Toronto-based TriDelta Financial, a fee-based financial planning firm. Assuming your mortgage costs about three per cent per annum, you would have to earn the equivalent rate of return to offset the cost of carrying the mortgage. However, that’s not the case if you are an investor who expects a much higher return. “At these low interest rates, I would not recommend paying off anything. By paying the capital off, you’re taking capital to guarantee a very low return. But it depends on your risk profile, of course.” As an investment alternative, Rechtshaffen recommends common stocks such as BCE Inc., which pays a 4.8 per cent dividend. “By focusing on income and dividend growth, you should be able to generate 3.5 to four per cent yield annually, before any capital gains.” than GICs. Furthermore, if you are very close to retirement, he would put aside three years worth of living expenses. “These accounts earn more than two-year GICs, and your money is always available,” says Andreana, adding that you also have the flexibility to switch to GICs should their rates become more attractive. “Building up your cash reserves will allow you to draw down from them when equity markets may be down.”