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Protecting Your Nest Egg in Volatile Times

The sky is falling, or so it would seem.  After all, the situation we are finding ourselves in is not one that has occurred in anyone’s lifetime – young or old.  We have seen viruses before.  We have also seen diseases, wars, famines, and great recessions to name a few.  Never have we, as a global society, been faced with such a common threat, such commonality in our vulnerabilities.  Make no mistake, humanity will overcome this challenge.  There will be some tragic loss along the way, but humanity will overcome, and humanity will learn.  Health care systems will improve, governments will adapt, and companies will potentially be forever changed in how they conduct business globally.

We are all bombarded with so much information daily right now it is difficult to aggregate all that information into a cohesive thought such as “How will this impact my Family?”.  Those of us who are fortunate enough to remain healthy may be faced with financial difficulties.  Will I have a job?  Will I be able to pay my expenses?  How will this affect my plans for Retirement?

As Financial Planners and Portfolio Managers, we are charged with the responsibility of helping clients answer these questions.  Given this unprecedented situation, and its immediate impacts on markets and economies around the world, we thought it would be useful to share how we approach volatility when it comes to managing our clients’ life savings. 

Firstly, we prefer to be PROACTIVE rather than reactive.  Stock markets have been overvalued for a considerable amount of time.  Over the past 2 years we have strategically allocated client funds to Private Alternative Investments that do not react to swings in public stock markets or bond markets.  This is the exact approach being taken by Canada Pension Plan, and pension plans around the globe.  By investing in things like Infrastructure, Real Estate, Private Equity and Private Debt, Pension funds can earn very strong rates of return with almost no volatility.  Simply put, when public trading is removed, so are emotions like fear and greed.

So why doesn’t everyone invest in Private Alternatives?  To be clear, these investments are not new.  In fact, they have been around for decades.  Unfortunately, they have not generally been made available to the retail public.  In order to access these types of investments, there are certain criteria that often limits access to the wealthiest 2% of Canadians.  Those that do qualify, are often subject to stringent limitations on liquidity.  Let’s use Real Estate as an example:  If you bought a house in BC prior to 2010, you experienced substantial upside during the boom in 2015.  During that time, and well into 2016, houses would sell in days with very short closing periods.  Your house was quite liquid.  As we progressed into 2018 however, things cooled off and many houses sat idly on the market for several months.  If you were reliant upon your home equity for some other need, this lack of liquidity presented a problem.  So, Alternative Investing has historically been a space reserved for wealthier Canadians, large Institutions, and those who do not consider liquidity to be very important.

The traditional investment portfolio is based upon something called Modern Portfolio Theory.  Are you ready for the interesting part?  Modern Portfolio Theory was invented in 1952!  Not very modern at all, is it?  In fact, the investment industry in Canada today is still guided by these same principles.  This is how investors (and advisors) balance risk and return.  Today’s BALANCED investment fund typically consists of 60% Stocks and 40% Bonds and targets a 5% rate of return.  When you are finished reading this article, I invite you to Google the following: DEATH OF THE 60/40.  What you will find is an endless list of articles discussing the reasons why many bright minds feel this traditional, and extremely common approach no longer works.  Stock markets have become more volatile and record low interest rates have driven government bond yields well below inflation.  Some Income investors have even turned to the stock market as a source of income while bonds have done so poorly.  No wonder Canada Pension Plan, one of the largest pension funds in the world, has been steadily moving away from these asset classes.[i]

At Gilman Deters Private Wealth, we pay attention to where the SMART MONEY is heading.  After years of record growth, stock markets became well over-valued in recent years.  At the same time, Bonds have had little to offer in terms of income or growth.  We began to scale back from these public markets in 2018 and 2019 and introduced Alternative Investments into our portfolios.  As discretionary Portfolio Managers, we have been able to offer these products to ALL our clients and we have been able to do so while maintaining a very reasonable amount of liquidity.

Currently, global governments and companies alike are invoking a range of policies to stem the spread of the COVID-19 Virus.  As of March 19th, Canadian and US stock markets have retreated 30% and 28% respectively this year.  Since their highs in February, they have dropped 34% and 32%.  While fear of a global pandemic has set in, investors are reacting by fleeing the stock market to protect their savings.  Many of the traditional (broken) 60/40 Balanced investment funds have suffered steep double-digit losses, ranging from 10-20%.  The largest of mutual fund in Canada, the RBC Select Balanced A fund was down -17.43% this year as of Friday[ii]

So, how are WE doing?  We are pleased to report that our balanced models have experienced less than 1/3 of this drop when compared to the “broken” 60/40 model.  This is due largely in part to the consistency of our Alternative Investments which have continued to grow in the face of public market volatility.  We have also increased our cash reserves and are eager to re-deploy that capital into the stock markets when the right opportunity presents itself.  For the time being our focus remains on protecting our clients from this sort of volatile environment.

If you are concerned about the global financial markets or want to benefit from our team’s exclusive access to private Alternative Investments and pension style portfolios, please don’t hesitate to contact us.  We look forward to hearing from you. 

Until then, stay healthy and stay safe.

-The Gilman Deters Private Wealth team



[i] https://www.theglobeandmail.com/business/article-shift-from-stocks-boosts-cppibs-returns/

[ii] https://www.morningstar.ca/ca/report/fund/performance.aspx?t=0P0000706A

I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by HarbourfrontWealth Management Inc.”

This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing, and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The information is provided with the understanding that Harbourfront Wealth Management is not herein engaged in rendering legal, accounting, tax or other professional advice. While we have made every attempt to ensure the information contained in this document is reliable, Harbourfront Wealth Management is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or as to the outcome to be obtained from the use of this information, and is without warranty of any kind, express or implied. The opinions expressed herein do not necessarily reflect those of Harbourfront Wealth Management Inc. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are not to be construed as a solicitation or offer to buy or sell any securities mentioned herein. Harbourfront or any of its connected or related parties may act as financial advisor or fiscal agent for certain companies mentioned herein and may receive remuneration for its services. The comments and information pertaining to any investment products (The Portfolios) sponsored by Willoughby Asset Management are not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units of The Portfolios is made pursuant to the Offering Memorandum or Simplified Prospectus and only to investors in Canadian jurisdictions. Important information about The Portfolios is contained in the Offering Memorandum or Simplified Prospectus available through Willoughby Asset Management. Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with investments in The Portfolios. Investments in The Portfolios are not guaranteed, their values change frequently, and past performance may not be repeated. Historical annual compounded total returns including changes in unit value and reinvestment of all distributions do not take into account sales, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Unit values and investment returns will fluctuate and there is no assurance that The Portfolios can maintain a specific net asset value. Harbourfront Wealth Management Inc. (“Harbourfront”) has relationships with related and /or connected issuers, which may include the securities or funds discussed in this commentary and are disclosed in our Statement of Policies Regarding Related and Connected Issuers. This policy is included in your new client package, on our website, or can be obtained from your investment advisor on request.

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Q4 2019 - Investment Update