Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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Meric Koksal, managing director and head of product at CIBC Asset Management 

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Last week, in the first installment of our two-part Exploring Alternatives series, we heard from my colleague, David Wong, on the evolving investment landscape and purpose of incorporating alternative investments in portfolios. Today, in part two, I’ll be taking a deeper dive looking at some of the specific classes of alternatives, their features and benefits and how they can benefit a client’s portfolio. 

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There are many options to look at when it comes to alternative investments. Specifically, we can start off with private equity. 

Private equity is effectively investing in the ownership of private companies. This can come in a variety of forms. It can be venture capital, where the investment is in early-stage companies. It can be growth equity, where investment goes into more established companies, and buyouts, where the manager is acquiring controlling stakes. 

A second popular version that you will hear about is private credit or private debt. This is where the managers are lending money directly to private companies. Again, this can take various forms of lending, sometimes referred to as non-bank lending. 

A third fairly wide category is real assets, where the investments are in physical assets like infrastructure, real estate and natural resources. This can come in both equity or debt format. 

Last but not least we have hedge funds. Although sometimes considered separately, private investment funds that use various strategies and are not publicly traded fall under the broader umbrella of private markets. 

For the purpose of this podcast today, I will be specifically focusing on the funds investing in private assets, private equity, private credit and real assets. 

* * * 

Going into how each strategy can benefit a client’s portfolio. This comes in various forms, and the opportunity cost is a very important question in relation to the benefits that private market exposure can bring. 

Tying it back to what David mentioned in part one, investors can look to move some of their equity or fixed-income allocation to privates. Private equity can be considered for a portion of that equity allocation. The private equity investment can provide clients with enhanced returns. David shared some examples in part one last week. The relative pickup in returns in these private investments typically come as there needs to be a liquidity premium that the clients should demand. 

You also get an opportunity to invest in various stages of a company’s development. In public markets, you’re typically investing in the company when it’s a relatively mature company with a steady revenue stream. In private equity, you get access to companies either through venture at very early stages or in a little bit more mature stages. But in either case, there is more risk involved, and that is why they tend to deliver higher returns than what you may see in public markets. 

Moving on to private credit or debt, this category of private investments can be a great fit for the fixed-income portion of the portfolio, as at their core, these strategies effectively aim to pay a steady income to clients, typically on a monthly basis. And this income tends to be higher than what investors can achieve in public markets, even in the high-yield space. To give you an example, the typical income that you would expect in a private credit fund currently is around 10%, or even in low teens. 

Moving on to real assets, real assets can play a crucial role to create a well-diversified asset allocation, acting as a complement to the traditional equity/fixed income mix. Another additional benefit with infrastructure real estate or agriculture-linked investment is the hedge they provide against inflation. As the cost of living rises, the value of these physical assets, and the income they generate tend to increase as well. 

In all of these three – private equity, private credit and real assets — clients can not only enjoy returns that can be enhanced versus comparable public investments, but they also tend to be uncorrelated to public markets, which means adding them to your asset allocation typically reduces the overall risk or volatility of the portfolio. And at the end, clients end up achieving enhanced return with lower volatility, which means through this asset allocation, they achieve better risk-adjusted returns. 

This is one of my favourite stats when it comes to private markets: almost 85% to 90% of companies by count are held privately. So when investors are looking at only public markets, they’re really getting exposure to about 10% to 15% of what is available for investment out there. This means introducing private markets into asset allocation allows them to access part of the investment universe, which is diverse across industries and geographies. 

* * * 

When considering if privates should be a part of the asset allocation, the questions are not that different from other investments. A few key ones that come to mind: what are the investment goals of the client? Is it preserving capital, targeting growth, creating consistent income, or a combination of these? As I previously outlined, there are different private funds that will fit each one of these goals. 

A second question, and a very important one, is what is the time horizon for the client, as well as liquidity and cash flow needs? This is especially important as privates don’t offer the same liquidity profile as public investments. Public markets offer intraday or daily liquidity. As much as they have evolved, private investments still currently offer quarterly liquidity to a limit that varies by the type of investment. So this is very important when considering investment in private markets for clients that have very specific and constrained daily liquidity needs. And when it comes to time horizon, these investments should be considered as longer-term holdings versus a short-term tactical allocation. 

A third question that comes to mind: what is the client’s risk tolerance? Given the liquidity profile we just talked about, private investments are typically considered medium or high risk. This should be taken into account with regards to specific client risk profiles. 

A couple other questions that are particularly important and specific to private markets are, what is the client’s investment knowledge? This is still a new area for advisors and their wealth clients. There’s a lot more information available, but it is not as easily accessible as public investments. So really getting the clients up to speed before moving a significant allocation to private markets is very important. 

Last but not least, fees. It’s a question that should come up with every single investment. And as transparent as the fees are, they are not as straightforward as a traditional management fee. A lot of the investments that you will see will involve a management fee, as well as what’s referred to as performance fee. They do tend to be different from what you would see in public markets, so it’s very important for advisors to educate their clients as to the impact these fees will have on their returns. 

* * * 

Advisors, just like in any other investment, should do their research to see if private alternatives is the right fit for their clients. There’s a lot of great educational pieces available from various sources, and these tend to cover all the benefits, as well as the nuances that are involved with these private investments. 

So if advisors can map out how these investments can fit within the client’s asset allocation and how they can be additive in their path of reaching their goals, I think that sets the strong foundation to introduce these. 

It is very important to note that these are longer term investments with less liquidity versus public comparables. I personally think it’s very critical for advisors to provide regular updates to their clients once these private investments are introduced in the portfolio.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

Alternative investments can offer investors enhanced returns with less risk compared to public investments, says Meric Koksal, managing director and head of product at CIBC Asset Management.

That’s because alternatives are often uncorrelated to public markets, she said in a May 21 interview. “Adding them to your asset allocation typically reduces the overall risk or volatility of the portfolio.”

Further, investing in private markets provides investors access to companies in a more diverse range of industries and geographies, she said.

“Almost 85% to 90% of companies by count are held privately,” she said. “So when investors are looking at only public markets, they’re really getting exposure about 10% to 15% of what is available for investment out there.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Koksal detailed the three areas in alternative assets that wealth investors have access to: private equity, private credit and real assets.

Private equity

Private equity can be considered for the equity allocation of a client’s portfolio. It allows clients to invest in the early stages of a company’s development, compared to public markets where the opportunity comes when the company is relatively mature with a steady revenue stream, noted Koksal.

“There is more risk involved [in early-stage investing], and that is why they tend to deliver higher returns than what you may see in public markets,” she said.

Private credit

Private credit is a great fit for a client’s fixed-income allocation, she said.

“These strategies effectively aim to pay a steady income to clients, typically on a monthly basis. And this income tends to be higher than what investors can achieve in public markets, even in the high-yield space.”

Koksal noted returns tend to be in the low teens range.

Real assets

Real assets help diversify a client’s portfolio by adding to their equity and fixed-income allocation, while also providing a hedge against inflation, she said.

“As the cost of living rises, the value of these physical assets, and the income they generate tend to increase as well.”

As with all investments, there are several factors to consider before adding them to client portfolios. Koksal said advisors should review client goals, time horizon and liquidity needs. Alternative investments should be considered longer term, and currently only offer quarterly liquidity.

“This is very important when considering investment in private markets for clients that have very specific and constrained daily liquidity needs,” she said.

Another key consideration is a client’s risk tolerance, she said. Due to liquidity constraints, alternatives are considered medium to high risk.

She also suggested advisors explain how fees for alternatives differ from traditional investments. “A lot of the investments that you will see will involve a management fee, as well as what’s referred to as performance fee,” she said.

And before adding alternatives to client portfolios, advisors should do their research by reviewing educational resources that cover the benefits and nuances of these investments, she said.

“It’s very critical for advisors to provide regular updates to their clients once these private investments are introduced in the portfolio,” she said.

Koksal’s episode of Advisor to Go was the second in a two-part series on alternative investments. Check out part one, where CIBC’s David Wong discussed the evolution of alternative assets.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Alternative investments have become increasingly available to individual investors over the past several years, and these asset classes tend to weather volatility better than traditional investments, says David Wong, CIO, managing director & head, total investment solutions at CIBC Asset Management.

“It isn’t unusual to see these types of funds do better in volatile periods, given that they take on very little or no market exposure,” he said in a May 20 interview. “In 2022, when the S&P 500 was down 18%, the median manager in the relative value market-neutral equity hedge fund universe was up over 1%.”

And when markets are generally down — such as in early April following tariff announcements — the lack of regular valuation minimizes stress among private equity investors ” You [don’t] have had the same level of worry as public market investors,” he said.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Wong noted that institutional and high-net-worth investors have long leaned on “the Yale Model” — an investing strategy developed by David Swensen in the 1980s that leans on alternative assets to help diversify portfolios.

“What these investors have learned is that trading off liquidity of public exchange-traded securities and lower-risk investments, such as bonds, in exchange for lower liquidity has resulted in better returns over the past few decades,” he said.

And now more alternative funds are becoming available to individual investors, noted Wong. New “investor-friendly features” include the ability to buy at any time through a single transaction, lower minimum investment requirements, and frequent subscription and redemption periods.

Alternative investments can be broken down into two categories: liquid, such as hedge funds and commodities; and illiquid, such as private equity, private credit, private real estate and private infrastructure, Wong explained.

Investors with a longer time horizon and a diversified portfolio can especially benefit in this space, he said. For instance, a traditional 60:40 portfolio had a return of 8.8%, and volatility of 9.6% from 1990 to Q3 2024, according to JPMorgan. During that same period, if the investor had allocated 50% to equities, 30% to bonds and 20% to a combination of private equity, real estate and hedge funds, the portfolio would have achieved a return of 9.2%, with volatility of 8.9%.

“So a portfolio with a 20% allocation to diversified alternatives achieved better returns than a traditional portfolio,” he said. “But also importantly, it did so with lower risk.”

The key to realizing the benefits of investing in alternatives is patience, he said. Understanding the asset mix of the funds is equally important.

“Executing on the Yale Model for an individual investor demands a long-term focus, and individual investors need to have advice because on their own, they don’t have the governance structures that institutional investors have,” he said.

Further, keep liquidity in mind. “While liquidity features are increasingly present in alternative strategies that are available to wealth channel investors, it’s not meant to be used as a way to be extremely tactical with their portfolios,” he said.  

Stay tuned for next week’s podcast, where CIBC’s Meric Koksal will discuss asset allocations among different classes of alternatives.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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David Wong, chief investment officer, managing director and head, Total Investment Solutions with CIBC Asset Management 

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With today’s investors up against increasing challenges in the continued search for enhanced long-term returns, downside protection and portfolio diversification, many are looking beyond the traditional 60:40 portfolio in the search for better long-term outcomes. In the first of our two-part Exploring Alternatives podcast series, I’ll be looking at the evolution of alternative investments, and the purpose they can have within a traditional portfolio. Be sure to look for part two next week, where my colleague, Meric Koksal, will be taking a deeper dive looking at asset allocation among the different classes of alternatives. 

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Alternative investing today can be loosely defined as anything that is not included in the typical traditional investment food groups of stocks, bonds and cash, which are investments that are easily accessible and liquid. 

Now to simplify and narrow the scope for a useful discussion, we might bucket alternatives into a couple of categories: alternatives where the underlying assets themselves are liquid, such as hedge funds or even commodities; and those where the underlying assets are illiquid, such as private equity, private credit, private real estate and private infrastructure. 

Now, the evolution of alternative investments goes back a long time. The first private equity funds, where institutional investors paid professional managers to buy private companies, were formed in the 1940s, focused on venture capital or early-stage growth investments. And the evolution into buyout-focused private equity, which is so popular today, really got its start in the 1970s. Now, the first hedge fund, which focused on long/short equity was formed in the 1950s. 

While these alternative investments have been around since the 1940s, the evolution of the widespread adoption of alternative assets really begins in the 1980s, with the approach that David Swensen developed when he took over as the head of the Yale endowment. When he took over the Yale fund in 1985, it was about 90% invested in traditional assets: equities and bonds. And by 2020, it had about 75% in alternative assets in a combination of private equity, hedge funds, real estate and natural resources. 

With that approach, he helped the endowment achieve annualized returns of 13.7% from 1985 until his passing in 2021, which was over 3% higher than the average for his endowment peer group, and about 5% higher than the S&P 500. 

These results have transformed how institutions and high-net-worth individuals have invested over the past several decades, and is now widely known as the Yale Model. Ultimately what these investors have learned is that trading off liquidity of public exchange-traded securities and lower risk investments, such as bonds, in exchange for lower liquidity has resulted in better returns over the past few decades. 

Today, estimates peg the amount of assets at $5 trillion in hedge funds, and $13 trillion in private assets. So it’s a very big part of the investment landscape. 

However, for individual investor portfolios, there is very little presence of these alternative investments up to this point for the simple fact that these funds are not available to most individual investors. They demand a big upfront commitment of capital in amounts that are out of reach for most investors. And an investor typically cannot simply go out and buy a fund at any time. There are fundraising periods that private managers have, and relationships and due diligence is required, which typically necessitates an investment team to do the background work before investing. 

So the excitement for the individual investor today is that these choices have increasingly become available to them over the past couple of years, with the creation of alternative funds geared towards individual investors who access their investments in wealth channels. These funds are typically built with very investor-friendly features: 

• Evergreen availability, meaning you can buy a fund when you need the allocation, rather than depending on a private asset manager’s fundraising schedule; 

• You can make the investment with a single transaction that doesn’t require unpredictable capital calls over time; 

• There are lower minimum investment sizes as well, and often, a diversified portfolio on day one; and 

• There are relatively frequent subscription and redemption periods. 

Essentially, all the things that make alternatives inaccessible to all but the most scaled institutions and family offices are eliminated with these new products geared towards wealth channel investors. From that perspective, we are living in very exciting times as far as the implications for adoption by a wider group of individual investors. 

* * * 

Now, how individual alternative assets are performing in the current macroeconomic environment is quite difficult to speak in general, just given that the performance of alternative assets have such a wide range of returns around them, and the returns really be vary based on manager selection. So it’s hard to talk about the alternative market as a single category of investing. 

Also, data availability can be more difficult than we typically see from traditional investments due to factors such as lags and appraisals for private assets, just as one example. If we look at one category of alternatives that do report the returns on a timely basis: relative value market-neutral equity hedge funds. Now the investment universe has over 125 managers in this universe, and the median manager had a positive return in the first quarter of 2025, when the S&P 500 had a negative 4.3% return in U.S. dollar terms. 

Now, it isn’t unusual to see these types of funds do better in volatile periods, given that they take on very little or no market exposure. In 2022, when the S&P 500 was down 18%, the median manager in the relative value market-neutral equity hedge fund universe was up over 1%. 

If we look at private assets, it is harder to find current data given the lags in reporting. But in general, from what we have seen, there is less volatility in 2025 so far. Private assets are typically less volatile for the simple fact that they aren’t valued on a minute-by-minute basis of every trading day. 

While some question the validity of this approach, the month of April was actually a great case study on why this might be a superior method of thinking about your assets. The S&P 500, which is a bellwether of public market exposure in the U.S., started the month at a level of 5,600 and finished April at just under 5,600. So there’s barely any movement at all looking at end point to end point. And yet, during the month, there was a lot of volatility. The level got below 5,000 on April 8, when concerns about the impacts of tariffs were at their most pessimistic. That can create a lot of discomfort for investors. 

Meanwhile, private equity investors wouldn’t have received any feedback on valuation during the month, and so you wouldn’t have had the same level of worry as public market investors.  

Unless you need to sell your investment using a long-term approach that ignores the daily, monthly or even yearly swings, can be a way to not only compound returns more efficiently, but also to enjoy life more, and worry less about things that tend to smooth out over time. 

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Alternatives can benefit portfolios in a number of ways. But for the right type of investor with a long-term timeframe, alternative investments can create meaningful enhancement to a traditional portfolio of assets. 

Alternative investments can provide diversification to traditional assets in a number of ways. For starters, alternative investments are fundamentally different by offering businesses properties or loans that simply aren’t for sale in public markets. And they can give investors access to companies that a good private manager can help shape through their actions to help grow revenues or reduce expenses in a way that public market managers simply cannot do because they’re typically small holders of the overall company. 

Secondly, the return patterns are often quite different from those in traditional assets because there can be a careful reduction of specific market factors, in the case of hedge funds, for example, or their valuations are based on expert appraisal on a less frequent basis in the case of private equity. 

Now, before adding alternatives to a portfolio, investors should understand what each additional idea is bringing to the portfolio in the context of what they are trying to accomplish with their portfolios. Rather than fall into the trap of investing on the latest buzzwords, investors should first ask themselves what they need their money to do for them and how long they have until they need it. This is more important than what products or managers that someone is investing in. 

Start with “why?” For example, if you’re investing for retirement and you’re in your 30s, you might have a 30-year time horizon in front of you to earn, save and invest before you need to take money out, which is a very long timeframe that allows you to consider taking on a different portfolio risk profile than someone who is newly retired and needs investment income for their lifestyle immediately. 

Once you’ve established desired outcomes, understanding the purpose of each investment you are putting in your portfolio is critical. Traditional equities have proven over long periods of time to bring solid returns to long-term investors, and they are liquid. Investors should therefore demand a return premium from their private asset allocations relative to their public market equivalents, since they are trading off liquidity and should be rewarded for this if they are selecting the right strategies. 

Ultimately, if one can take on some degree of illiquidity in their portfolio, greater efficiency can potentially be achieved. According to JPMorgan’s calculations, a traditional portfolio allocation of 60% S&P 500, and 40% U.S. bonds had a return of 8.8%, and volatility of 9.6% over the 1990 to Q3 2024 period. So about 0.92 units of return per unit of risk. If that investor took out 10% from equities and 10% from bonds, and allocated 20% to a combination of private equity, real estate and hedge funds, the portfolio would have achieved a return of 9.2%, with volatility of 8.9% over the same period. 

So a portfolio with a 20% allocation to diversified alternatives achieved better returns than a traditional portfolio. But also importantly, it did so with lower risk, about 1.03 units of return for every unit of risk realized. The evidence that alternatives can improve overall investment outcomes is therefore quite compelling. 

* * *  

As with all investments, alternative assets carry potential risks, which is the other side of the coin of potential reward. Risk and reward are inseparable as investment concepts, after all. The risks that are unique to alternative assets are that they are less liquid than public markets. And private asset funds tend to have more concentration or higher allocations to their individual investments than public asset portfolios. 

Leverage, or the use of debt to purchase investments is also typically higher with alternative funds. And fund managers need to be judicious in borrowing money, since it can magnify losses if they get it wrong. But these risks have historically been rewarded over time with the right investments. 

Perhaps the biggest risk for individual investors is not having enough understanding of what they’re buying when they are adding alternative investments to their asset mix. Executing on the Yale Model for an individual investor demands a long-term focus, and individual investors need to have advice because on their own, they don’t have the governance structures that institutional investors have. 

Yes, investment process can slow things down, but in the world of investing, that can be a very good thing to avoid emotional decision making. Individual investors need to keep in mind that while liquidity features are increasingly present in alternative strategies that are available to wealth channel investors, it’s not meant to be used as a way to be extremely tactical with their portfolios. 

So it is best for long-term investors who have the timeframe and the patient mindset that is necessary to realize the benefits of investing, especially when everyone else is worried about uncertainty. It is especially important with alternatives to work with an advisor who is knowledgeable about alternative assets, and who has a network of experts and specialists in alternative assets that they can lean on to dig as deep as possible into the risks to increase the odds of success.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

* * * 

Michael Keaveney, vice-president, managed solutions, CIBC Asset Management 

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Equity markets got off to a pretty good start in 2025 but, by any measure, volatility has spiked in recent times. Global equity markets started to turn a little bit in March to different degrees. Emerging markets were still trending higher. Developed foreign markets only slightly down. Canadian equity markets were off almost 1.5% in March. But U.S. markets were down almost 6%. 

Now some of that U.S. downturn could be attributed to loftier valuations there, and repricing of expectations around the mega-cap technology sector.  

But April took things to a bit of a new level. Since the start of that month, there’s been both a very rapid decline and stunning short bounce back in major global equity markets, particularly in the U.S., in companies of all sizes and parts of the market. 

Specific volatility measures, like the VIX, which measures expectations of future short-term volatility in the Bellwether S&P 500 by looking at options pricing, got up to levels in early April to rates we haven’t seen since the beginning of the pandemic, and certainly much higher than the fairly sleepy levels that we saw over the past couple of years in 2023 and 2024. 

Volatility in fixed income has also risen and the MOVE index, which tracks options on U.S. interest rate swaps, has also risen, but not quite as high versus its own history as the equivalent equity market measures. 

Maybe what we can’t measure very well, but we certainly feel, is a quickening of the news cycle as it relates to headlines that send the markets rushing in one direction or the other. The intraday market movements related to changing headlines reminds me of the frenetic energy around 2008 and 2009, of course with different catalysts. 

The major catalyst causing the current volatility that we’re seeing in March and especially April has been around the U.S. administration’s announcements and subsequent shifting about imposing tariffs on trading partners around the world. There’s very little clarity even now around the initial rate of tariffs, where they will be imposed, and for how long. And there’s plenty of speculation about how other countries will react to these tariffs, and how that could escalate and have a negative impact on global growth. 

Market participants generally don’t like that kind of uncertainty. Companies have a tougher time justifying making capital investments and providing forward guidance. Central banks’ policy stances become more difficult to generate with respect to inflation expectations and anticipated output. And investors as a group don’t like all of those effects. So the result is a broad change in sentiment from generally risk-on late in 2024 and even to the beginning of 2025 to very much more risk-off sentiment. 

But of course, it hasn’t just been straight down. Part of the volatility has been the large shifts up on certain days when there’s been a perception of a reprieve, or a delay, or other de-escalation of tensions. At the margin, many types of investors have been trading the headlines, and volatility has correspondingly spiked. 

All that points to just a lack of clarity on how a potential new global trading order will impact what has been quite a benign and optimistic market over the past couple of years. 

* * *  

There’s lots of times right now where advisors can show value to clients. Times like this come with their challenges but are also great times for all of us in the investment profession to earn our seat at the table by focusing on being proactive in our communications and encouraging a return to sound principles. Advice isn’t just about the investments themselves. It’s also the managing of emotions and all the other things that advisers do with their clients. 

And in times like this, some of that will also include a reminder of our past conversations we’ve had with clients, and the actions we’ve done to move clients towards their goals. 

We’ve got a number of strategies. Some of them come down to investments, but many of them come down to behaviour. And I think the first and most important strategy is to have well-documented goals for client investments. If you are on choppy waters in the lake, it’s much better to have sight of the shore or the lighthouse. 

The next strategy is to have a broadly diversified portfolio. Now while bonds have been a bit more volatile in this environment as well as the equity environment, they have done a better job at being balanced in the portfolio on days when equity markets are down. That’s been a very welcome change from 2022, when there was more of a moving in lockstep between bonds and stock markets. 

But global equity markets have also not behaved exactly the same. Canadian and foreign equities have outperformed the U.S. markets. And last year, in 2024, there was a strong impetus to think of the U.S. markets as the place to be — maybe to the exclusion of other markets. But times can change quickly, and a diversified approach really does sand the edges on overall volatility. 

Now the next strategy is to understand that volatility is a recurring feature of markets. Diversifying will remove a lot of the risk, but not all risk. So, there’s ongoing education, or perhaps better stated, there’s a coaching role that advisors should consider incorporating. Like many of life’s important lessons, it does get revisited from time to time. 

Now, finally, from a purely investment standpoint, we actually think that low-volatility equity strategies could be interesting as part of that broadly diversified portfolio. They come in several varieties, but the common feature is to target a basket of stocks with favourable volatility expectations versus a broader market, either as individual stocks or as a group. And that, we think, can give a smoother overall experience for the clients, while still maintaining exposure to the stock market. 

* * * 

I think the focus on proactive communication with specific clients in mind is really important. We can broadly push updates. We can push market notes and general commentaries. And those are all good to have in volatile times, but really to the degree that they enable further conversations tailored to the circumstances of a specific client. Because, nowadays, virtually everyone has easy and instant access to all kinds of investment information, commentary, predictions. And in many cases, it’s pushed to them, whether they want it or not in headlines and in social media. But a trusted adviser knows the client, they know their goals and are in a unique position to cut through the noise and not just add to it. So reaching out and talking to clients about them and not just the markets is really tip number one. 

Next, I think that as advisors, we need to have go-to resources to illustrate that coaching on fundamental investment principles, particularly: 

• inevitability of bouts of volatility over short periods; 

•  the value of diversification; and 

•  the merits of taking a long-term approach. 

These tools should be up-to-date with current information. They should be available during the conversations you have with clients ,and as follow-ups to those conversations. And don’t assume that these fundamental tools are only for novice investors. Even more experienced investors are going to benefit from coaching back to the fundamentals. 

And then, finally, a third tip would be to make sure that you’re well prepared to comment on activity and current positioning within your clients’ investment portfolios. In volatile times, clients really want to know that there’s a steady hand at the tiller. Whether there’s been significant changes, or more of a staying of the course, we think that most clients will benefit from hearing the rationale. 

Now, that said, it’s a good idea to frame all of this communication in terms of how the portfolios are positioned for a variety of outcomes, and not just the certainty of any specific outcome, because we are in volatile times.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

Ongoing volatility and uncertainty is causing a broad change in sentiment from risk-on to risk-off among market participants, says Michael Keaveney, vice-president, managed solutions at CIBC Asset Management.

The main catalyst causing market volatility is the U.S. government’s tariff announcement, he said on the Advisor to Go podcast.

“There’s very little clarity, even now, around the initial rate of tariffs, where they will be imposed, and for how long,” he said. “Market participants generally don’t like that kind of uncertainty.”

Listen to the full conversation on the Advisor to Go podcast, powered by CIBC Asset Management.

Keaveney outlined four strategies that will help advisors better serve clients as volatility persists.

1. Document client goals

The most important strategy is to have well-document goals for client investments, Keaveney said.

“If you are on choppy waters in the lake, it’s much better to have sight of the shore or the lighthouse,” he said.

2. Diversify portfolios

Keaveney said having diversified portfolios with a mix of both bonds and equities is key.

“While bonds have been a bit more volatile in this environment, as well as the equity environment, they have done a better job at being balanced in the portfolio on days when equity markets are down,” he said.

And be sure to evaluate global equity markets, as well.

“Canadian and foreign equities have outperformed the U.S. markets,” he said. “In 2024, there was a strong impetus to think of the U.S. markets as the place to be — maybe to the exclusion of other markets. But times can change quickly, and a diversified approach really does sand the edges on overall volatility.”

3. Know that volatility is a recurring feature

While diversifying portfolios can reduce some of the risk, it will not entirely remove it, Keaveney said, adding that it’s important for advisors to incorporate client coaching in their approach, and focus on proactive communication.

“A trusted advisor knows the client, they know their goals,” he said, “and are in a unique position to cut through the noise and not just add to it.”

Advisors should have go-to resources that illustrate investment principles, he said, including “bouts of volatility over short periods, the value of diversification and the merits of taking a long-term approach.”

4. Implement low-volatility strategies

Adding low-volatility strategies to a broadly diversified portfolio is also important, Keaveney noted.

“They come in several varieties, but the common feature is to target a basket of stocks with favourable volatility expectations versus a broader market, either as individual stocks or as a group,” he said. “That, we think, can give a smoother overall experience for the clients, while still maintaining exposure to the stock market.”

Overall, Keaveney stressed the importance of clear client communication as volatility continues.

“Frame all of this communication in terms of how the portfolios are positioned for a variety of outcomes, and not just the certainty of any specific outcome, because we are in volatile times,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Text transcript

Welcome to Advisor To Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject matter experts themselves.  

Michael Keaveney, vice-president, managed solutions, CIBC Asset Management.  

The Bank of Canada is among a handful of major central banks that have started to cut interest rates, and currently, signs point to the U.S. Federal Reserve joining the fray in an upcoming meeting.  

The headwind to growth posed by central banks is declining, and broad financial conditions appear to be reasonably balanced. For fixed-income markets, falling central bank policy rates are helpful for bond prices, and the same can be said to varying degrees for different parts of the equity markets.  

For government bonds and developed markets specifically, our expectation is that current yields will trend narrowly around a range and are fairly reflective of long-term equilibrium, and therefore their returns in the next year will be dominated by the interest income they generate.  

Of course, a central bank policy rate is only one of many factors that can impact markets, and the policy rate itself is a single response tool to a variety of moving parts and changing sentiments.  

Market participants also make a great deal of trying to predict exactly how far central banks will move in any direction. Our current base case belief is that inflation has remained stickier than expected, which could end up meaning that central banks will ease policy by less than expected.  

There are other plausible alternative scenarios to the base case as well. A second wave of inflation remains at least a possibility, as does a global slowdown. These aren’t our base cases but could be potential outcomes of central banks’ future policy stances, either being too loose or too restrictive, respectively. So, it’s important to point out that, while we have a view that more central banks are on or about to be on a rate-cutting path, and that could be a net positive for markets, there are consequences to the banks cutting too little or too much, and there are many other potential factors that can drive markets. 

We think political risks could pose a more important challenge to markets and investor sentiment than economic data or central bank activity. Volatility related to political events has already risen in several markets around the world. For example, unexpected election results this year caused spikes in market volatility in India and South Africa and price declines in France and Mexico. We expect U.S. elections in November to be especially relevant. U.S. elections are often associated with positive equity returns and higher market volatility, but starting valuations of U.S. equity markets this time around might make the levels of gains we’ve seen recently there much harder to generate going forward.  

Political risks aren’t just about elections, though. We also see China’s relations with the U.S. and Europe as an ongoing risk to monitor. Now, in general, market volatility isn’t overly elevated currently, but we expect it to rise as we move through the end of the year.  

These risks likely won’t be resolved in a completely clean manner or by an exact date. There could also be risks that arise that aren’t currently factored in by the market. Witness the surprise global equity sell off in early August of the unwinding of the Japanese Yen carry trade, which caught most investors by surprise.  

The best mitigation to these types of uncertainties, which are ever present, from an investment standpoint, is prudent portfolio diversification, likely in the form of some sort of balanced portfolio. From a behavioural standpoint, which could be more important to the individual investor, gaining knowledge and real-world experience that short-term risk is a standard feature of being an investor — that’s a powerful mitigator to crystallizing bad outcomes in the short term. And another risk mitigation strategy is emphasizing focus on the things investors can control, such as making a regular investment plan for their long-term goals.  

Regular investment strategy is extremely valuable for virtually all investors. For most people, when we look at our important investment goals, which could be financing a prosperous retirement or funding a child’s education, there’s a future commitment and there may not be enough assets there today to pay for it. Because it’s a commitment way off in the future, it’s tempting to put off the effort to make the savings. After all, there’s no shortage of competition in the present for spending our income. But the future commitment or liability, if you will, is there regardless. If it’s an important and big goal, like retirement, then it needs to be financed in more bite-sized chunks while we are earning an income. In other words, most of us have an earnings lifetime which is shorter than our overall lifetime.  

The regular investment strategy matches up our earnings stream to our long-term goals, but it’s more than that as well. First of all, let’s note that we’re calling it an investment strategy, not just a contribution strategy. And there is a difference. It’s not just putting the cash aside, though that is important. It’s also putting it to work right away in the investments that have been determined to be suitable to the goal over the time horizon. That probably means taking on some appropriate investment risk in the short term, but it puts aside a temptation to make hard-to-get-right timing decisions. It takes the complexity of the markets, which is outside our control, and pre-commits to a schedule of investing, which is within our control. If all an investor has done is put aside cash, then there is still the decision to be made about when to invest it, and it seems like the markets are always giving us reasons to hold off investing in the short term, while long-term results have always tended to support the idea of making the investment when we have the opportunity.  

Those with a regular investment strategy also have the advantage of making investments at times when the markets are down. It’s a built-in buy low strategy at times. They also learn, through their experience of investing regularly, to be less fearful of short-term volatility and come to see volatility as more of an opportunity than a challenge. So, having a regular investment strategy breaks down big goals into more manageable chunks, and is an action that makes the good habits of buying low, navigating volatility and staying invested easier and within the control of the investor.  

According to a CIBC commissioned survey, respondents who had not implemented a regular investment plan cited lack of knowledge and fear of losing money most commonly as barriers. These are valid concerns, and they sound very much like the types of barriers people might put up for themselves before starting out on any good habit, maybe something like starting an exercise program. They don’t necessarily know how to do it, and they don’t know how to be successful or are afraid of failing. So, they are in need of some sound guidance to get started, and that guidance could be to focus more on understanding fundamental investment principles, as opposed to every last detail of the markets and starting small. This is where sound advice can come in. In my view, one of the primary ways advisors demonstrate their value is to act as behavioural coaches to their clients. Given the complexity and uncertainty of investment markets and our very widespread human tendencies to bounce between emotional extremes of being overly optimistic and being fearful, there’s a strong value for advisors in helping investors focus on the things they control and away from the things they don’t. Helping clients understand that volatility and uncertain outcomes are standard features of investing is the educational component of that. That’s an ongoing task, and the lesson needs periodic reminders, even during the good times. And advisors do that. Implementing a regular investment program connects clients to their goals and takes away a lot of the potential for indecision and poor timing.  

So, it’s a valuable tool in an investor’s toolkit to reinforce with something controllable, the principle that time in the market, as opposed to timing the market, is most helpful for long-term success. 

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Carissa Lucreziano, vice president of financial and investment advice with CIBC.

The financial services industry is working to increase the number of female advisors and planners to attract and retain more female clients and better handle the wealth transfer women are expecting over the next five to 10 years. So, let’s talk about the different perspective female financial advisors and planners bring to their roles and what effect this has on client relationships.

In Canada today, women control $2.3 trillion in personal finances and that number is only expected to drastically increase over the next five years to $3.8 trillion. There are several reasons for this. First, an increase in the number of women in high-paying positions. The gender pay gap is slowly narrowing. Also, intergenerational wealth transfer and inheritance through widowhood.

For firms that are in the business of investing for Canadians, women are great clients to have. According to a study from the Mackenzie Research Institute, maintaining client relationships with women who are part of the baby boomer generation could boost the revenue potential of firms by 33%. On top of that, firms that build client relationships with younger women, especially in the millennial range, could see up to four times faster revenue growth. Now note that this is U.S. data, but the same dynamic is at play here in Canada.

Now, let’s look at the unique value of female financial advisors. One of the best ways to develop and maintain these relationships with female clients is by having a strong presence of female advisors. Studies have shown that female clients largely prefer working with female advisors, and 80% of women switch advisors within a year of their spouse passing. This has been a static stat over the past several years. However, I want to point out that this becomes a non-issue if a woman is engaged with their advisor and they have a strong relationship, regardless of their advisor’s gender.

So with that in mind, the question is what do female financial advisors do differently? In the last decade, expectations as well as needs of Canadians have changed drastically when it comes to what they’re looking for from an advisor. In the past, you’d go to your advisor, and it would be a very performance-driven and product-driven conversation. There’s a big movement in financial planning where it’s all about discovering the needs and goals of the client and that synergy with implementing investment strategies over the long term.

Female advisors tend to have this type of holistic approach when it comes to planning by understanding their client’s goals and factors that may impact their ability to build wealth, like career breaks or caregiver costs and retirement planning. Women also tend to think about planning in terms of life goals rather than focusing on performance alone, which is ultimately goal-based investing.

Female advisors tend to focus on an important element of the industry, building long-term relationships with their clients, and the emphasis on connecting with that next generation, which is the children and spouses. This is such an important attribute in an advisor, especially for female clients who tend to think in the realm of their wealth, not just for what it means for them, but also what it means for the next generation.

Female advisors also have a strong track record as portfolio managers. This is due to the way in which women think about investing, time in the market and not risk averse, but risk aware. This is an important distinction for advisors in general to keep in mind. Women advisors can also help their female investors understand how the synergies of risk tolerance aligns to achieving financial goals.

So let’s move to the opportunity. When it comes to the financial planning and advice industry, women are still underrepresented in most areas and some more than others. In a full-service brokerage, about 15% are female here in Canada and U.S. data shows that 23% of all certified financial planners are women.

So what are the trends in leveraging this great opportunity? You’re starting to see financial institutions work together to attract more women to the industry with programs, education and awareness. Mentorship and providing clarity is so important for those exploring a career in advice. There’s a big opportunity and educators in financial planning and advice are becoming more and more aware to really peel back the onion on the financial industry and make it a part of the financial planning program, so that when women are standing in front of an employer they know what questions to ask and they understand their options and the vast roles available. The financial planning industry is changing and evolving and there is so much opportunity. The bottom line, female financial advisors are good for clients and what’s good for clients is good for the business.

How can an advisor help female clients create a plan that will help achieve their life goals, and what is the difference about investment planning for women? Over the past few years, we have seen an increase in the number of women interested in investment planning. CIBC conducted a poll in 2019 and it showed that 68% of women seek advice when it comes to investing. And that definitely hasn’t changed, it’s only increased over the years. We’re seeing this trend also increase across all age groups.

When it comes to taking action, though, less than half of women have put a plan in place. This is according to a survey by the FPSC (Financial Planning Standards Council) in 2019. They found that only 41% of women acted on putting a plan in place for themselves.

An advisor can really help close the gap and propel women to take action by working with them to build a personalized financial plan. That plan would capture a view of their cash flow, which is important to view the income to expenses along with their financial goals, which includes their needs, their wants, and inspirations for the future. This plan can help women prioritize saving for goals like retirement and investing, while having a better understanding of their overall spending and what it takes to get to their ultimate goal.

An advisor can help create a diversified portfolio that aligns to a personalized risk profile, time horizon and goals, in addition to providing guidance on how to rebalance their investments with changing market conditions or individual priorities. They can also be the source of education and guidance, and this is really important and what Canadians in general are looking for.

At the end of the day, knowledge is power. An advisor can provide that financial education by explaining things like investment strategies to help give their clients a conduit for more informed decisions. When women have a better understanding of their options, they’ll feel more confident in their plan and more prepared for what life may throw at them.

Advisors can also provide education by inviting clients to events. Along with helping clients grow their wealth, a critical role advisors also play is helping clients prepare for future life changes such as wealth transfer. Women will receive some sort of inheritance and wealth transfer in the future, usually in two forms. Once from their spouse or partner, and once from their parents. And 90% of us will be required to play the role of sole financial decision at some point of time. Advisors can work on building the relationship with female clients today in helping them feel more prepared for that time in the future. Once they inherit, advisors can help female clients navigate a sum of money that could likely be life-changing. A crucial first step in inheriting a large sum of money is revisiting a financial plan, revisiting financial priorities, those of specifically to family, and putting together the right strategy for future success.

Ultimately, understanding our clients is the key to helping them build wealth. When it comes to investing, there are a few ways in which women’s approach is a little different. While women are somewhat less confident about investing, when they do invest they typically achieve better results, especially after adjusting for risk. Women are more patient typically, more diversified and less inclined to dabble speculative investments. Women focus on long-term goals that gives them a more long-term approach, and puts them in a good position to earn the equity risk premium, the higher expected return from stocks compared to bonds or cash. This risk premium is earned by investing patiently over the long term with a consistent approach and not by jumping in and out of the market.

We know that the appetite to invest is here. Now we just need to encourage and support our female clients to take action on their terms.

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Carissa Lucreziano, vice president of financial and investment advice with CIBC.

In the most recent CIBC Financial Wellness Poll, we asked about top concerns when it comes to the personal financial situation of Canadians and inflation was the top concern overall at 69%. But it was even more elevated among retirees at 78%.

When things feel uncertain, it’s important to bring back the focus on what is actually within our control. Nobody can control inflation, but we can control how we respond to these economic changes. An advisor plays a critical role by providing clients with timely insights, advice and resources. To help clients better manage their financial situation, share your insights on the market and economic environment and its impact to their personal situation with a focus on simplifying the noise. Especially during times like these of rising rates, inflationary pressure and concerns of a recession, clients will benefit from your guidance and your expertise, helping them build confidence.

So thinking about this opportunity, there’s a few things to consider. One, investment review. For equities check for enough exposure to broad-based Canadian equity funds that include dividend growth and energy, materials, and that exposure is not too narrowly focused. For fixed income you want to look at the mix of short to medium term. Assess where high interest cash funds or GIC ladders can be used within the overall portfolio strategy.

Second, review clients’ overall wealth. Reassure clients that OAS and CPP payments are inflation adjusted. Consider the option of deferring either or both programs for higher future payments if that’s an option and additional inflation protection. Review whether a client’s workplace pension is inflation protected. Many private sectors’ plans aren’t.

Last you can look at the inflationary impact of the client’s income and expenses. Some areas of retirement spending, like healthcare and travel, tends to be increased by more than just inflation. Review all sources of income, employment, pension, investments, for example, and for clients with high exposure to inflation consider maintaining part-time employment or consulting since this income provides an inflation offset. For clients with income properties, you can show that rent increases may be capped depending on province and may not fully offset higher inflation.

If a client is just about to retire, or has just entered the next chapter of their journey, it is important to review their lifestyle goals. They may have had original goals, for example, traveling six months of the year or taking up that golf membership. In this case it’s important to think about what costs have increased associated with those goals. Also, an important consideration, has the sediment towards those goals changed? Over the last several years many individuals and Canadians in general have reassessed their goals. So taking a good look at this and taking a good look at goals, as well assessing the budgets associated with those goals will help clients really see clearly and into the future of their retirement. Your advice, even in the most foundational form, will help build your client’s financial confidence and wellbeing and at the same time, build trust in your relationship.

Text transcript

Carissa Lucreziano, vice president of financial and investment advice with CIBC.

We’ve seen mortgage and line of credit rate increases at levels we haven’t seen since 2008. Grocery bills increasing in the realm of 11% and higher. All this leaving many Canadians concerned about the current strain expenses are having on their cash flow and the ability to save and invest for the future.

Here are five things that you can think about and discuss with your clients today. Share financial tools like online calculators to help clients better visualize and understand their current situation and their plan. Encourage them to try them out for themselves. For example, a budget calculator or a cash flow tool. Invite them to events that are relevant to their needs and life events. That could be a virtual event, something possibly in person, something that will help them, assist them, in the planning as well as their future goals.

Engage the family dynamic into the conversation. Consider identifying where partners, spouses or even parents can be weaved into that planning conversation. There could be opportunities for intergenerational planning discussions and overall estate planning discussions. And now is also a great time to introduce them to experts that will help them on their journey, such as lawyers, accountants, and estate specialists to name a few. A good place to start to help your clients understand and manage their finances is through a budget. Our most recent financial wellbeing poll found that more than 50% of respondents wish that they had a stronger level of financial literacy. Canadians are looking for more tools and resources to get a handle on their finances with a key area being day-to-day banking and budgeting. In this environment, it’s challenging to just simply cut back on expenses with prices for essentials like groceries, gas and mortgage payments, putting a big dent on cash flow.

Encourage clients to understand where their expenses have increased the most, including reviewing their debt payments, overall credit owing in the facilities available, and identifying areas they can optimize savings. Once they have an up-to-date budget and you’re aware of how much discretionary income they have each month, there’s an opportunity to look at their regular savings plan or implement one, allocating some money to be set aside for an emergency fund or looking at setting up those investment plans for RSPs and TFSAs, for example. However, on the flip side, if cash flow becomes tight, can encourage clients to simply decrease the contributions, but if they don’t have to, don’t stop them completely. And when the opportunity does arise in the future, look at putting those back up to the levels that they were at previously.

Next, review borrowing and credit expenses. You can uncover if your clients have any credit products that are affected by interest rate increases in the result of inflation. Their credit card interest rate probably won’t be impacted, but if they have a loan, line of credit or mortgage with variable rate interest, their payments have increased. You can walk through variable versus fixed decisions for mortgage clients. This is a big decision on many clients and many Canadian’s minds right now if they’re in that situation. If they were already in a variable rate mortgage, their payments may have gone up by approximately 3.25 since last March. Clients that are coming up for mortgage renewals over the next 12 months, they’re not going to wait until their maturity date. They’re thinking about it now. They’re looking for advice now. Keep those conversations going by taking them through different mortgage or credit scenarios and help them understand what their options are so they can feel more informed to make a decision that best suits them.

You can also want to look at their investment strategy. An important consideration is to bring to the forefront what the real return is on investments after inflation. Something that many clients, Canadians in general, haven’t really had to worry about over the last several years. In other words, how is the purchasing power of their investments holding up? Especially over the last little while. From 2010 to 2019, inflation averaged 1.6% annually below the midpoint of the Bank of Canada’s target rate of 1.1 to 3%. Inflation was both low and stable for an entire decade, which was good for equities. And as mentioned before, clients didn’t have to worry about these levels in the past 10 years. One of the most important pieces to consider is staying focused on the plan, reviewing their plan to ensure their asset allocation matches with risk tolerance and their current comfort level. Given lower expected returns and higher expected inflation, it’s important to have enough in equities to protect investments against loss of purchasing power.

This could be hard to do if it conflicts with risk tolerance. To help risk-averse investors, emphasize high-quality dividend growth equities. Canadian equities offer an attractive dividend yield compared to other developed markets and have also held up well against inflation so far, helped by our strong energy sector.

There may still be a lot of bumps in the market and you may still get calls from clients that will want to sell. Here are three strategies to help reassure them and get them to continue to invest. Focus on the long-term and understand the impact of their decision today. Get back to goals. While market losses can feel unpleasant, unlikely that most losses will fundamentally change a long-term goal. For example, someone is still planning to retire in their mid-sixties and they have 20 years to go. Still planning for children to attend university in the decade.

If goals haven’t changed and portfolios still make sense, often better to leave the portfolio as it is, possibly small tweaks, and give time for the market to recover and benefit from longer term compounding of wealth.

Review the big picture chart with clients showing that risk decreases and return increases when extending blend-investment horizon. And last, explain how clients earn the equity risk premium over the long term. Stocks return more than bonds and cash. The ability to identify long-term goals and purposefully invest towards them is a big part of how clients earn the higher expected return from equities.

The market provides the return, the clients earn it through patience and purpose. Clients may have funds waiting to invest in. There is no great time to invest into the market. You can show them the value of dollar cost averaging, and this could be a very, very good strategy, especially in times of market turmoil. Clients can sometimes make this into an all or nothing decision where they’ll either go all-in or wait on the sidelines. In practice, there’s a lot of room in the middle. For example, suggest deploying half of that cash now and deploying the other half over six to 12 months on a regular schedule. This balances the risk of investing with the risk of not investing.