Having an investment portfolio allocation of 60 percent stocks and 40 percent bonds was once an unofficial rule of thumb for portfolio diversification. However, this is no longer the case. To learn more about why investors should avoid following the 60/40 rule of diversification, the Financial Post recently spoke with Sightline Wealth Management.
“The 60/40 idea was first established in 1952, and became popular in the 1970s,” says Sightline Wealth Management Senior Vice President and Investment Advisor Paul de Sousa. “But markets have evolved, investment research has evolved, and new asset classes have become available to investors. In essence, 60/40 no longer offers true portfolio diversification.”
In our current market environment, portfolios now must meet three objectives to achieve proper diversification: lowering portfolio volatility, achieving a lower correlation between asset classes and giving investors better risk-adjusted returns. Unfortunately, 60/40 portfolios are no longer equipped to achieve these goals, but investing in various alternative assets might help.
“The value of alternative investments is that they can provide Canadian investors with access to an asset class that can offer portfolio diversification and a greater yield than fixed income,” explains de Sousa. “With the proper oversight by experienced advisors, private debt can offer the potential to provide a steady source of returns, even if the stock market experiences turbulence for which bonds won’t compensate.”
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc.
(“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
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