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360 Private Wealth Management: A New Normal Thumbnail

360 Private Wealth Management: A New Normal

A New Normal... 

Over the last week, I have exchanged emails and spoken with client households about the current COVID-19 health and economic situation. Last weekend, I exchanged a couple emails with a client whom I admire and respect greatly for his business stature and quiet, thoughtful demeanor. In his last email he stated that coming out of the COVID-19 situation, there will be a “new normal”. Reflecting on his words through the week, I agree… An event like this has the capacity to shape a generation’s thinking. This said, to quote the great Persian philosopher and poet Rumi (and fellow Stoics everywhere!), “This too shall pass…”. Significant events have occurred throughout history and a sense of “normal” has returned after each occurrence. We just need to stay connected and stick together (self-distancing at the same time, of course!) as families and communities and do the things we need to do to minimize the health and economic impacts of the current situation. 

When I sat down to write this blog message the objective was to discuss the importance of asset allocation in managing risk and to illustrate the possible impact and recovery scenarios that we may experience with investment portfolios in the face of the current situation. After typing a few lines, I realized that I had already addressed this in a two-part blog series in the last quarter of 2018. There is no better time than now to go back to the blogs I wrote back then to address the subject of portfolio risk and, how we determine household risk capacity in our financial life planning process and manage risk in our investment management process. I urge you to take a bit of time to read the blogs I wrote in November and December, 2018: 



Let’s carry the discussion a bit further in the context of the current situation. Here is an updated version of the chart originally used in the December, 2018 blog with data to the end of 2019: Source: PlanPlus / FinaMetrica www.planplusglobal.com 

Growth assets represents a mix of Canadian, US and International equities (approximate allocation of 1/3 to each geographic market area)

Our average household carries a mix of approximately 60% equities (Growth assets) and 40% fixed income and cash assets (Defensive assets). Some households will hold less in growth assets and some will hold more. The actual asset allocation any given household will have will depend on ongoing risk capacity analysis and discussions with each client household. As such they will be experiencing less or more volatility in the current COVID-19 driven investment situation. To keep the discussion as simple as possible, I will focus on the average household asset mix. 

Let’s look a bit more closely at the figures associated with our average household asset mix and the possible drawdowns being experienced. Here is a “drill down” on the FinaMetrica 60% Growth Assets / 40% Asset Mix (60/40 mix) portfolio, performance through the end of 2019:                       

                                                                                                                                                                      60% Growth 40% Defensive

Worst Falls                                                                                                                                            -24.00%

Best Rises                                                                                                                                                 36.70%

10-year Annualised Real Return                                                                                                    6.40%

10-year Actual Value ($1,000 Invested)                                                                                  $1,937

10-year Real Return above Bank Deposit                                                                                 4.60%

 To the end of 2019, the worst drop in such a mix according to FinaMetrica’s data (1973-to date) is a drop of 24% from October, 1973 through September, 1974 (11 months) for this particular asset mix. It took an additional 8 months after the portfolio value bottom for the portfolio to recover its original value.

The best rise for this asset mix in a given period from its previous highwater mark (the last recorded high value mark achieved by the portfolio) was 36.7%.

The average gross rate of return for the portfolio over the most recent rolling 10-year period (ending December 31, 2019) was 6.4% before expenses. Net returns will depend on portfolio expenses which are individual to each household depending on how assets are held and where the assets are invested. The figures here are for illustration and education purposes only. They are not indicative of any results that may have been experienced by any specific portfolio in the past or which may be achieved by a similar portfolio in the future. They are for discussion purposes only. 

To drill down on the information further, here are the historical details of the Worst Falls in the FinaMetrica 60/40 asset mix portfolio values and the time it took to recover the values lost in the drop, assuming portfolio asset allocation remained intact: 

Source: PlanPlus / FinaMetrica www.planplusglobal.com 

To provide balance, it is important to also illustrate the details of the Best Rises in the FinaMetrica 60/40 asset mix portfolio values and the time over which the portfolios rose in value, assuming the portfolio asset allocation remained intact: 

Source: PlanPlus / FinaMetrica www.planplusglobal.com 

With this information as a backdrop, where do we presently stand in the current COVID-19 driven market correction? Simply put, to date, we have not seen portfolio with an approximately 60/40 mix experiencing declines equivalent to or worse than the worst historical decline experienced in the FinaMetrica data. This is not to say that we will not see a decline worse that the data shows for portfolios approximating the FinaMetrica data mix. It may happen. This said, there is ample history of portfolio value recoveries to draw on which, in all likelihood, will happen again. 

If anyone wishes the full data set used along with a deeper analysis of how the FinaMetrica illustrative 60/40 portfolio has performed, relatively and absolutely, please call or email us. We will send out the full FinaMetrica report for the sample 60/40 portfolio being used here. A warning in advance… there is a lot of data and analysis material in the report! If you have an approximate portfolio mix outside of the 60/40 illustrative asset mix with us and you want a report more in line with your asset mix, call or email us and we will send you the FinaMetrica analysis report that more aligns with your household asset mix. If you are unsure of your approximate asset mix with us, please call or email us and we will determine your approximate asset mix and send you a report in line with your household asset mix. 

Returning to the title of the blog message (A New Normal), it is important to note that if markets have been over-valued for the last 18+ months going into 2020, we must be cautious about expectations coming out of this market and portfolio drawdown. If, let's say, markets were over-valued by say 15%-20% on a fundamental basis, households need to understand that when portfolios recover a reasonable benchmark will be a portfolio value less that where it stood on say, February 14th, 2020 (the date I am using as an the approximate peak in most portfolio values going into this drawdown). So, a simple target portfolio value, all else being equal, for a an approximate 60% Growth /40% Defensive asset mix portfolio coming out of this situation will be 9%-12% less than the portfolio stood in value as at say, February 14th, 2020 from where I stand (60% X 15%-20%). That is the new normal… 

We are here to help you stay focused on reaching your financial life goals. 

These are unprecedented times for all of us, and it’s human nature to want to react quickly to the economic disruptions caused by events such as the rapid spread of COVID-19. Market volatility can challenge any investor’s discipline and commitment, but I can help ease your mind and keep you focused.

Just like an athlete has a coach to train and guide them, I’m here to do the same for you. A good coach makes you better, helps you focus on your goals, and knows how to get you there— even when times are tough. A good coach also helps keep things in perspective.

Working together, we can review your financial situation make any necessary adjustments to your household financial strategy, helping you take advantage of opportunities in the market and taking you through the best course of action for your personal household financial situation. Based on your time horizon, we can review your household risk capacity and financial life goals. Remember, it’s not only about the return on your investments, but ensuring you stay on track to reach your personal and household financial life goals despite the current economic and market conditions. Take comfort in the fact that throughout history, a market decline was always followed by a period of recovery.

As always, if you have questions about the markets, your investments, or the impact of the current COVID-19 driven economic fallout on your personal financial life plan call or email me.  I’m here to talk.


David J. Luke, CFP, RFP, CLU, CH.F.C., CIM | Financial Advisor

360 Private Wealth Management | Manulife Securities Incorporated 

Unit 1 – 25 Scurfield Boulevard, Winnipeg, MB R3Y 1G4 

Main Office 204.925.5868 | Direct 204.925.2073| Fax 204.925.2263 | Toll Free 844.688.3656  

 This publication contained opinions of the writer and may not reflect opinions of Manulife Securities Incorporated. The information contained herein was obtained from sources believed to be reliable, but no representation, or warranty, express or implied, is made by the writer of Manulife Securities Incorporated or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional Advisors for advice based on your specific circumstances.