Why Alitis?
Because the world has changed!
Globalization of trade has resulted in the world’s economies becoming increasingly dependent upon one another. As a result, negative economic conditions in one part of the world (i.e. the US) will now have ramifications on the other side of the world (i.e. China) and the effects can be felt globally.
This increasing economic interdependency has also led to global stock markets behaving in cycles that are increasingly similar – portfolio managers call this ‘increased correlation’. And what this means is that, particularly when stock markets fall, they all fall at the same time – this is not good for your stock portfolio!
Stocks
Many years ago, global economies and stock markets operated more independently, not dis-similar to the pistons in your car’s engine. Some cylinders are firing while others are on the down stroke and the rest are in mid-cycle – thus delivering a relatively smooth ride.
Increased correlation in global stock markets is analogous to all of the cylinders firing at the same time, or not firing at the same time – thus leading to an extremely volatile engine, or global stock market.
So the world has changed, and your approach to wealth management must also change in order to manage the new risks of our global economy. If you don’t change, be prepared for more extreme volatility from the equity (stock) portion of your portfolio!
Bonds & GICs
The other significant change for investors is that interest rates have collapsed to historic lows and, in this benign global economy, are not expected to increase measurably any time soon.
Whether you hold a fee-based brokerage account at a major investment dealer or a mutual fund, there is likely a component of your portfolio that is earning little or no return after you account for the fees you are paying.
Think about it – if your portfolio or mutual fund is holding Cash (i.e. T-Bills) earning 1% and your management fees are 1.5% or 2.5% (as they are in many mutual funds,) you are actually going backwards on this portion of your portfolio.
It gets worse; after you account for the income tax you have to pay on the interest income and subtract another few percent for inflation, your ‘real return’ could be as low as -3% to -5% on the fixed income portion of your portfolio.
For retirees withdrawing income from your portfolios, this situation goes from worse to dangerous! Here’s why: if you are earning a negative return on a component of your portfolio and are extracting regular cash flow as retirement income, you are now eating into your capital. Once your capital is diminished, you have a decreased ability to grow it back to your original portfolio value.
Summary
It is undeniable, the world has changed and if your portfolio strategy does not adjust to the new reality of increased stock market volatility and ultra-low interest rates, you are putting your wealth, your retirement and your family at risk.
If you are holding retail mutual funds or a traditional fee-based brokerage account with only stocks and bonds, you are, in our opinion, holding an out-dated strategy that has not kept up with the times.
To address these challenges AlitisTM Investment Counsel Inc. offers state of the art portfolios that significantly diversify our clients into several additional pension-style asset classes that can reduce the risks of an over-concentration in volatile stocks and/or low-yielding bonds.
Please click on our next tab: ALITIS PORTFOLIOS to learn more.
