Yahoo Finance These are the best times for investors to adapt and be creative with their holdings
Warren Buffett famously said, “The most important quality for an investor is temperament, not intellect.” In today’s market environment, there is no shortage of intellect, but I do see a lack of temperament.
Maybe it’s the paltry performance of global equity markets. Last year’s losses are only being partially made up by this year’s gains, resulting in growth investors still being down anywhere from five per cent to 15 per cent. It gets worse for dividend-focused investors, especially those in interest rate-sensitive sectors such as utilities and banks.
The only bright spot globally is the 10 largest companies in the S&P 500, which have made up more than 134 per cent of the index’s return this year, but even these are beginning to sell off.
The fixed-income markets that have been the go-to for the past 35 years are having a particularly difficult time delivering positive results as well. The U.S. bond market has now been in a drawdown for 39 months, making it the longest bond bear market in history, according to Charlie Bilello, chief market strategist at Creative Planning LLC.
All this is taking a serious bite out of long-term returns for investors, especially those more conservative ones deploying the traditional 60/40 balanced portfolio, with five-year annual returns now down to the low single digits.
Not surprisingly, many are running out of patience, and pulling money from the markets altogether to pay down higher-cost debt or to support increased spending habits established in the post-COVID-19 YOLO world we now live in.
The longer this inflationary, low-growth and uncertain geopolitical environment continues, the more this will hurt 60/40 investors who depend on the opposite to make money and the greater the likelihood they will withdraw even more money from the markets.
This is where the value of a good adviser comes in, one who is willing to be flexible and adjust portfolios by being tactical in nature as well as steer towards a goals-based approach that is forward-looking instead of backward.
During challenging and uncertain times, I’ve found it incredibly helpful to turn to the sages of the past such as Lao Tzu, the founder of Taoism, to re-establish a calm and reassuring temperament. This allows one to be more like water, which is fluid, soft and yielding, to overcome whatever is rigid and hard such as rock, which gets slowly worn away.
Another favourite of mine is philosopher Jiddu Krishnamurti, who said most of us live in a constant state of self-contradiction, not only collectively but individually, which I see all the time within myself as well as in the markets. However, where there is fear, there is no freedom.
“But the mind is not creatively empty; it is acquiring, gathering, living on the past or the future, or trying to be focused on the immediate present. It is not in that state of creativeness in which a new thing can take place,” Krishnamurti said.
As an investor, especially a Canadian one, it’s hard not to overthink things and join the collective’s negative temperament to the point where you end up giving into the fear of the unknown.
That said, these are the best times to adapt, to be creative and to look for new ways to make money instead of being told to sit tight and it will all work out. This includes thinking outside the box, but also considering well-proven strategies such as structured notes, equity option overlays and even certain segments of the market that have been beaten down like utilities or disliked such as oil and gas.
Popularity of an investment is not the best way to judge worth
Think like an owner if you want to improve your investing chances
Finally, this also isn’t a time to deviate from your financial goals and objectives, as accelerating your lifestyle spending could come at a great cost in the future, so having a plan is essential and, even more so, sticking with it during periods such as we’ve experienced in the past few years.
Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc, operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning.
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