60/40 investors lost out when bonds and stocks both fell, but there are other splits that are a better fit for the times. Find out more.
At the end of June, we calculate that a global passive balanced portfolio with 40 per cent of its assets in the Vanguard Total Bond Market ETF, 50 per cent in the iShares MSCI World Index ETF and 10 per in the S&P TSX, is flat over the past 12 months while the MSCI World Index is up 20 per cent in Canadian dollars. The global passive balance portfolio has now generated an annualized return of just 3.2 per cent over the past five years compared to an annualized 7.
It isn’t a surprise, then, that those with balanced portfolios are now considering either capitulation by going into higher-risk equities or the opposite and buying money market instruments and GICs currently paying interest at or above five per cent. The problem with such a conservative play is that if interest rates start to fall once again, they will be missing out on the recovery in bonds.
Then there are those choosing to concentrate the majority of their portfolios in more value-based companies paying a healthy dividend to supplement their retirement income. While these companies corrected last year they have yet to fully participate in the recovery and remain exposed to the potential for another broader market correction. According the Barchart.
Fortunately, we take an entirely different approach for our conservative clients, which has proven especially helpful in navigating the uncertainties in interest rates and equity markets.Article content It starts by having an investment return specific to meeting a client’s financial objectives. Interestingly, our work on this over the years has indicated that an annualized six per cent return would be sufficient for the majority of a conservative investors out there. In order to achieve such a goal, we’ve diverged from the 60/40 with a unique positioning that has worked very well.
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