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How can clients invest and sleep well at night?

January 16, 2023 | Last updated on October 13, 2023
3 min read
Two colleagues having a discussion around the boardroom table
istock / VioletaStoimenova

It isn’t an easy time to be an investor. Stock and bond markets are choppy. Inflation is pinching budgets. As interest rates rise, there’s talk of recession. But, as advisors know, there are risks associated with avoiding investing, investing too conservatively or pulling out of the market, too.

If your clients have accumulated surplus savings but are nervous about what to do with those savings, convey to them that investing appropriately depends a lot on how long someone has to invest. Money clients need to use in the next six months should stay liquid. But money clients don’t plan to touch for 10 years has an opportunity to grow through volatile markets and create a bigger nest egg than if it stays on the sidelines.

It also helps to put the current situation in perspective, suggests Kevin McCreadie, CEO and chief investment officer of AGF Management Ltd. He points out that while many investors want to return to “normal,” they often don’t realize that March 2020—immediately before the impact of the pandemic hit markets—wasn’t normal. Ever since the 2008 global financial crisis, interest rates have been abnormally low in Canada, the U.S., and Europe, and the big fear in the years following 2008 was deflation, not inflation.

“It’s not that the absolute level of interest rates is high. They’re actually fairly normal relative to history,” McCreadie says. “It’s the pace at which we’ve gotten there that’s the problem. We went from near zero in the spring in Canada and the U.S. to now when we’re approaching 4%.”

While it’s been difficult for everyone to adjust to the very quick rise in interest rates, McCreadie says markets have already priced in a return to conditions more similar to the more accurately described “normal” of 2005 and 2006. In fact, for clients with enough runway before they need to access their money, this is an attractive time to invest. After all, many stocks have already declined in anticipation of a recession, and many bonds are finally providing income thanks to higher interest rates.

“Now is not the time to sit in cash or move to cash,” McCreadie says.

A portfolio approach can provide comfort

Portfolios geared toward different investor profiles can be reassuring for investors because they deliver discipline, diversification, and automatic rebalancing. McCreadie oversees the five AGF Elements Portfolios, which pre-emptively positioned themselves for the pivot to increasing rates.

“We were more cash based and underweight fixed income by a large amount, and then we used alternatives in our portfolios—liquid alternatives that gave us ways to be defensive [and] would actually go up when the market went down. [In addition,] we thought inflation was going to be around for a while, so we used real assets in our portfolios—things that would be inflation beneficiaries,” he explains.

Now that interest increases are expected to top out at 4% or perhaps 5%, McCreadie and his team are starting to reduce the portfolio underweights in equities and fixed income, while keeping inflation hedges and alternatives in place.

Professional oversight that investors know will proactively respond to market conditions can provide the reassurance clients need to keep investing their savings through all market conditions. That, in turn, makes it much more likely they’ll achieve their financial goals.

“The value of advice has never been greater for people,” McCreadie adds. “It’s never been more important to have an advisor.”

If there was ever a time for advisors to reach out to clients and make sure they’re invested appropriately for their investor profile, it’s now. There is an investment solution for everyone—you just have to help your clients find theirs.