Volatile Stocks And No Help From Bonds

For the year to date, 2018, the All Country World Index (ACWI) ETF ($US) is down by -1.5%. So if you have a globally diverse portfolio (and don't forget the ACWI has a little more than 50% U.S. companies), all of a sudden things are not looking so good (the S&P 500 is positive by about 4.9%, so far this year).

If you are fully invested in a balanced 60% equity portfolio, you are going to be down on the year at the moment, by about -0.90% (-1.5% X 60%) in the equity portion.

Your bond portfolio (the other 40%, if you are fully invested), if we use the Canadian Bond Index ETF (XBB) is also lower:

Year to date, 2018, it is lower by -1.16%, so your bond portion, which traditionally is supposed to balance things out (equities down / bonds up), is not helping. The 40% bond portion of the 60/40 is lower by about -0.46%.

Put them together and you have a fully invested portfolio that is lower on the year so far by about -1.36%. Time to call your advisor and find out how you stand. Likely, she / he will not be calling you!

If you have an over-exposure to Canadian equities, which is called the "home country bias", that is likely going to push you further into the red as the S&P TSX is lower by close to -2.5% this year, so far.

So my friends, being fully invested this year, so far has not been friendly to a traditionally balanced portfolio.

If you are stuck in mutual funds, add an additional 2% MER or so on top of that and it really starts to get negative.

Having some exposure to cash equivalent High Interest Savings funds at or about 1.6% (annual interest) certainly helps take out the sting of negative portfolio performance. If you have some U.S. short-term Treasury notes at or about 2.5% (as we do at High Rock Private Client), it helps take a little more of the sting out.

You see friends, you can sit in a fully invested, globally diverse and balanced portfolio and ride the swings of volatility or you can find subtle ways of limiting the swings and have ammunition to utilize lower prices as they occur. The advisor types that tell you to remain calm while they sit and watch these swings in your portfolio and distract you with other issues are not really working so hard to earn their fees. Same with the "Robo" world.

On the other hand, those managers that are preparing your portfolio to deal with greater levels of volatility by adjusting the portfolio mix are definitely earning their fees and it will come out as such with better long-term performance over time.

Less downside, more potential upside, smaller swings in portfolio value and better risk-adjusted returns over the long haul. That my friends is what will get you to your goals.