Assess Portfolio Risk First, Then Returns

Its common knowledge that global markets are unpredictable. With this in mind, during the 2020 global financial bear market caused by the COVID-19 pandemic, a majority of investors witnessed major declines in their portfolios and a downfall of specific alternative investment strategies.

With volatility in the global markets, wealthy investors want advisors that create portfolios which lower market uncertainty, even during the difficult periods. 

Manage Risk with Goals, Not by Comparative Returns

Assessing a portfolio based on relative returns is not an accurate way to measure success, but to gauge how a portfolio is meeting your financial goals at a risk level YOU are comfortable with as an investor.

This is why it’s vital to assess an investor’s threshold for risk and then assess their short and long term financial goals.

Risk Assessment for an Investor

While volatility is a common feature of virtually every market, investors themselves each have their own tolerance towards risk which can be deeply personal.  

Many investment advisors might have different attitudes on risk while some may have little to no concern about it entirely. We at HighView take risk seriously and actually work alongside behavioural psychologists to assess an investor’s views on risk regarding their portfolio.

Portfolio Design that Coincides with Risk level Investor is Comfortable with while Reaching Financial Goals

Here at HighView, we believe that the long term returns of an investor’s portfolio is just as important as how the portfolio behaves during different market cycles overtime. Portfolio behaviour monitoring is something HighView has ample experience with from our many investors. The same could be said for our investors and their perspectives towards portfolio volatility.

Even if portfolio structure proves positive through-out the long term, if investors do not feel comfortable even with the short term risk, they are likely to sell-off at a premature time.

To counter this, investment advisors must focus on risk before returns. When creating a client’s portfolio, we’ve classified this in to “4 level” process:  

• Asset Class: Which asset types will be included in the portfolio? (equity, fixed income, real estate, cash, etc.)
• Investment Mandates: Which investment mandates will form the portfolio? (Canadian equity, US mid-cap, Canadian Laddered Bond, Canadian Corporate Bond, etc.)

• Investment Managers: What investment managers will be employed to satisfy the mandates selected above?

• Investment Vehicles: Will the Investment Managers appear in client portfolios through the use of investment Funds or individual securities (stocks and/or bonds)?

HighView performs a deep analysis on a proposed portfolio even with potential extreme market conditions factored in. We thoroughly inform our clients about all potential volatility, so they are not “caught-off-guard” when something negative happens in the markets.