Some investors are understandably cautious, given the unpredictable nature of global markets. This morning, I met with some investors who expressed concerns about market volatility in the current environment. They understand that excess cash can become a drag on long-term performance and that the current “high” rates offered by the banks will not last forever.
They are open to alternative investment strategies and are looking to seek uncorrelated returns with a lower level of volatility for their hard-earned retirement accounts. They are wary of complicated investing strategies using option calls as these can become costly.
It is true that well-managed alternative investments have robust evidence supporting their inclusion in long-term investment portfolios. If you are curious enough, adding alternative funds to a portfolio can lead to lower standard deviation, higher returns, and higher Sharpe/Sortino ratios.
A key part of the discussion involved running various TM-IM models to better understand how different conservative strategies might perform under multiple scenarios. With a success rate of over 90%, I compared my models to the traditional 60/40 portfolio, consisting of 60% stocks and 40% bonds.
The great thing about a conservative portfolio is that you can literally buy and forget about it. You will not lose sleep at night and you do not have to hide those embarrassing fund statements from your spouse.
What is the catch? Based on the model outputs, I emphasized the importance of maintaining a long-term perspective. While conservative strategies focus on minimizing volatility, they also require patience and discipline. As the old saying goes, slow and steady wins the race.
The meeting ended well. As always, past performance is not a guarantee of future results.
