Latest news with #CraigBasinger
Globe and Mail
26-05-2025
- Business
- Globe and Mail
What recent market downturns can teach us about portfolio diversification
Most investors understand that diversification can help preserve portfolio values when markets are volatile. But an asset mix that worked during one market downturn may not have the same stabilizing effect in another, money managers warn. Bonds have epitomized this point in recent years. They helped investors stave off losses during the 2000 dot-com market meltdown, the 2008-09 global financial crisis and the pandemic-driven downturn in 2000. But 2022 was a different story. Instead of balancing out a portfolio, bonds fell alongside stocks when inflation surged, causing investors to question the validity of the conventional balanced portfolio. Bonds helped during the tariff-driven market sell-off in April, but other diversification options, such as gold and European equities, were better bets. 'It highlights that you can't use plain vanilla bonds as a portfolio diversifier anymore. You need to diversify the defensive portion of your portfolio,' says Craig Basinger, chief market strategist at Toronto-based Purpose Investments Inc., adding that each market correction has different causes. Diversification often includes bonds, alternative investments (such as private equity and hard-asset real estate), gold, currency (such as the U.S. dollar) and securities in different geographies such as Europe and Asia. Investors have more choices than ever to add these mixed assets through a growing list of exchange-traded funds and mutual funds. Some advisors also add alternatives to their portfolios using private market funds. Added diversification could mean more muted portfolio returns when equities are soaring, as they did in 2023 and 2024. Still, Mr. Basinger says a mix of assets can be an important portfolio ballast when markets correct. Each downturn is also driven by unique circumstances, Mr. Basinger notes, which makes it hard to predict which asset will work best. Consider the U.S. dollar, which is usually a safe bet when there's global economic uncertainty, but not lately. The U.S.-led tariff war and concerns about the country's debt have led to a drop in the greenback. Still, Mr. Basinger says the U.S. dollar and bonds could become havens if the economy weakens. 'You can't give up on these different diversifiers even if they didn't work in the last correction,' Mr. Basinger says. 'You have to acknowledge that you don't necessarily know what's going to work and need a more diversified defence.' Ben Jang, portfolio manager at Nicola Wealth Management Ltd. in Vancouver, says alternative assets can provide stability when markets are volatile and if other diversification vehicles such as bonds, gold or currencies don't work as expected. 'You need to go outside the traditional box to provide diversification in today's environment,' he says. His firm invests in equities, bonds and alternative assets, including hard-asset real estate, private equity, infrastructure, private mortgages and private debt. The alternatives are also diversified to help balance portfolios. For example, if higher interest rates create headwinds in real estate, he says private debt assets would experience tailwinds as financing rates typically float with interest rate movements. 'They're examples of true diversifying assets to hold together to create balanced portfolios,' he says. Nicola Wealth has become more defensive given market uncertainties around tariffs and a possible recession. In public equities, Mr. Jang is focused on companies with stable and growing dividends and diversification into global markets, such as Europe. His bond portfolio is tilted toward mid-duration corporate bonds. 'Bonds will continue to be a diversifying factor and a bit more defensive than equities,' he says. Brent Joyce, chief investment strategist and managing director at BMO Private Investment Counsel in Toronto, says diversification isn't a foolproof investment strategy, but he believes it's better than the rest. 'There's no perfect elixir that, if I diversify, I don't have to worry about anything else,' he says. Some asset classes will always underperform others in a broadly diversified portfolio, he says. The goal is to smooth out the volatility during market corrections, whether driven by external shocks such as COVID-19 or tariffs, or the market imbalances behind the dot-com bust and global financial crisis. 'If something doesn't work, it doesn't mean diversification is broken. It will work over time,' Mr. Joyce says. He says the right diversification strategy starts with a financial plan, weighing factors such as risk tolerance and investment time horizon, and then understanding what diversification can and can't do. 'With diversification, you're not going to get the best performance [and] you're not going to get the worst. But, over time, you're going to get better than any other strategy I've come to know,' Mr. Joyce says. Also, diversification isn't a set-and-forget strategy. He says assets should be rebalanced regularly to ensure investors have the right asset mix that aligns with their financial plan. 'It's about having discipline and a methodical approach,' he says.
Yahoo
20-02-2025
- Business
- Yahoo
Investing in volatile times: How finance professionals deal with stressful, unpredictable market moves
Canadians have faced a considerable amount of uncertainty so far this year, with the U.S. trade war perhaps the dominant source of stress within a stream of news not short on stressful stories. Those with investments or thinking about investing must manage within a context that has seemingly unavoidable tariff narrative twists and turns — driving worries about the economy, inflation, the loonie, job market, interest rates, business development, you name it. So how do professionals in the finance industry handle more intense points in the cycle? Yahoo Finance Canada spoke to three to understand how they navigate stressful times. Keeping on top of what's happening in the world is useful, but making moves on the basis of every bit of news is not, says Craig Basinger, chief market strategist at Purpose Investments. 'If you're really going to keep changing your strategy based on headlines, you're going to end up chasing your tail and probably destroy a lot of potential returns out there just by being so reactionary,' he said. It's better to step back and watch what's happening, Basinger says, and if the news is big, 'sleep on it' before reacting. 'Turn it off for a while. Step back and remember, investing for most people is a multi-decade-long journey.' If you are tracking the news, make sure you aren't in an echo chamber, Karl Schamotta, chief market strategist with payments company Corpay, says. Having information sources that are too one-sided 'can cause tunnel vision and lead to a situation in which you are just doom-scrolling through life instead of seeing the big picture.' He further counsels including longer-form material, such as books and considered blog posts, in one's information diet. 'It's easy to get lost in a bombardment of surface-level items that don't give you any understanding of the longer-term trends and fundamentals.' Whatever the situation, keeping your goals and needs in focus is essential, Frances Horodelski, who has held senior roles in Canada's investment industry for decades, said in an email to Yahoo Finance Canada. 'Always remember why you are investing,' she wrote. 'What are your return needs, tax position, capital availability, short-term cash needs, risk tolerance, equity-to-fixed income allocation, etc. Always come back to the plan. I know it sounds trite, but it does work.' It may also help to pause to define the circumstances as objectively as possible, says Purpose's Basinger. 'We're probably in for four years of a noisier environment than we had the previous four years,' he said. 'And you just have to sort of acknowledge that that's the environment that we're in. But if you go back historically, the market does run into bumps here and there … but it also creates wealth over the long term.' Horodelski recommends staying focused on companies and how their approaches align with the headlines. 'Knowing your companies, what they do, where they sell, how they manage through the issues, what opportunities they may have etc. will allow you to be able to intelligently assess the final news, when it comes.' Making sure your portfolio is hedged against volatility is also wise, Horodelski says, 'whether it's cash, or gold, or low volatility, low beta, low correlation assets that can buffer you from the swings.' 'As for self-care,' Horodelski wrote, 'I choose love." She further turns to various well-tested means of turning off the noise. 'Walking (lots of it), and distractions like movies, good TV, and reading non-business books (just finished Dave Grohl's memoir from a few years ago and looking forward to Anne Tyler's latest novel and probably Bill Gates' memoir) and chatting on FaceTime with my children.' Basinger says that after experiencing decades of markets that move up and down with the news of the day, handling the next uncertainty has gotten easier. 'I think people who've been in this industry long enough, we've probably been through enough hair-raising environments that probably make us less reactionary than we would be otherwise.' To him, that's a point in favour of having a financial advisor, 'because they're a little bit removed as well from the emotional side.' For Corpay's Schamotta, the solution has four legs. 'I do think that having a dog is a way to balance out the world a bit. Mine helps me stay on a consistent schedule, forces me to interact with the real world more often, and provides (mostly) unconditional love.' John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android.
