Insights and Strategies
The Punch You Don’t See Coming…
As an avid amateur boxer, I find hitting the heavy bag and sparring in the ring to be an excellent workout, not to mention a wonderful stress reliever after a hard day of work. However, despite all the time and effort I have spent training over the years in this sport I love, it still sucks to get knocked out, which happens more often than not. Let me explain. Each week I face-off with a new sparring partner, and as soon as I figure out that person’s boxing style and weakness, my opponent changes the following week. I am often reminded of the quote from Katherine Dunn that, “in boxing, it's the punch you don't see coming that knocks you out.” And while I have yet to figure out how to anticipate the punch I can’t see coming from an opponent who changes each week, for investors looking to avoid a knock-out blow in their portfolios, I have good news for you. Unlike boxing, there are some simple steps we recommend investors take to avoid a knock-out blow, including but not limited to building well-diversified portfolios both within the major asset classes (e.g., equities, bonds, etc.) and also across global asset classes (e.g., US equities, Canadian equities, International equities, Canadian bonds, US bonds, etc.).
As we have highlighted in our past research, over short periods of time, markets will remain highly unpredictable even for the smartest minds on Bay Street. Also, uncertainty/volatility comes with the territory of investing, especially in publicly traded securities. This is normal, so get used to it if you haven’t already! Moreover, assets perform very differently over time, as we show in the below table, and there is no clear pattern or way of knowing precisely ahead of time which asset classes will perform the best/worst in a given year. However, below we demonstrate that maintaining a balanced portfolio within/across global asset classes can help to minimize the chances of getting knocked out!