It's a boring story: Balance and Diversity (and Yield)

It’s a boring story: Balance and Diversity (and Yield)

If you are looking for an exciting ride from your investments:

STOP READING NOW!

This year saw the Volatility Index (VIX) return to the highest levels since the 2008-09 Financial Crisis amid the calls for a double dip recession (May).

The S&P 500 fell 17% from its April highs in April to its lows at the beginning of July. Certainly not the stomach churning ride of over 50% from the crisis, but certainly enough to drive the already anxious, ready – to – retire folks (who had not already bailed) scurrying into the arms of bonds with 3% returns.

If you could have timed it right and bought from those in a panic, the S&P 500 rallied back to the April levels in the glow of the US Federal Reserve’s renewed stimulus effort (commonly known as QE2, technically referred to as Quantitative Easing) close to 22%.

If you chose to stay invested from the beginning of the year until today you would have secured a meager 5.5% return for all this roller-coastering (and emotional navel-gazing). Better than a 3% (bond yield) perhaps, but also a sleepless night or two.

The 60% (globally diversified) Equity and 40% Fixed Income model portfolio that we follow has produced a total return year to date of near 10.5%. We do not anticipate such good fortune regularly, but we are content with something in the vicinity of 7-8%.

This year's diverse asset classes driving the model?

REIT’s with returns in the vicinity of 20%.

Small Canadian companies with similar returns.

Small US companies.

Indian companies.

Assorted Income Trusts.

High Yield corporate bonds.

Fixed-rate perpetual Preferred Shares.

Next year?

Not sure, but the model will not catch the highs nor will it catch the lows like the S&P 500 (or TSX for that matter). Over time, different asset classes perform differently at different times bringing balance and diversity to a portfolio and smoothing out potential volatility.

It is not exciting, nor should it be.

Want boring investment strategy? We can help.

http://www.turnertomenson.ca/