Volatility is NOT Required for Return!

Lisa HandleyBlog

Volatility is NOT Required for Return!

Are you tired of the volatility in your investment portfolio? Do you wish there were options other than stocks & bonds that can have significant volatility or GIC’s that have a minute return? There is great news: Higher net worth investors have such options!

The technical term for these investments is Non-Traditional investments. They are often composed of investment opportunities that do not swing with or like the traditional equity and bond markets. University endowments, Family Offices and higher net worth families have been preserving and growing their wealth with these investments for decades.      Because the market for these investments is smaller and creating them takes more diligence and persistence, they are not as well known as products that are created for the mass market. 

Volatility is going to be part of the journey. If you are comfortable with these factors, there is likely a place for stocks, equity mutual funds, or equity exchange traded funds in your portfolio. If you do not want volatility but still want a solid return, it is time to move to Non-Traditional investments that will achieve this objective.   

History shows us reasonable returns can be made in the equity markets over the long term. Typically, the potential level of return coincides with the risk level.

Our clients have benefited from Non-Traditional Investments in their portfolios for several years. One of the reasons we chose to partner with Capstone Asset Management is, they specialize in Non-Traditional investments. Let us look at the Capstone Mortgage Pool as an example.

The pool was designed with three mandates:

    1. Deliver above average rate of return, targeting 8%/year
    2. Deliver regular, stable monthly returns
    3. Not swing with or like bond or stock markets

The pool has delivered on all three, even during the market impact of COVID-19! It has generated a return every month this year. 

As of August 31, 2020, the TSX return over the last 8 years, 4 months (the inception date of the Mortgage Pool) was 6.8%/yr. Over that same period, the Mortgage Pool returned 9.14%/year annualized before fees. The annualized volatility* of the Mortgage Pool was 0.97%, while the TSX was over 11 times as volatile at 11.30%. As you can see, volatility is NOT required to generate a solid return! This is just one of the pools our clients enjoy.

We find Non-Traditional Investments are especially appealing to business owners. They take risk in their business and have a large portion of their net worth invested, and dependent on, their business success. They prefer their other assets are invested where they will have limited volatility but still generate solid returns.

No one can predict the future of the markets. However, you can invest in asset classes that have a track record of not swinging with or like the stock or bond markets. As a result, unpredictable markets can have less impact on your financial future.

If you are tired of market volatility, contact us today to explore how you can have greater peace of mind, achieve retirement & investment goals in a steady manner, and ignore the noise of the markets. 

*Annualized standard deviation of monthly returns

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