Stock markets can be volatile at the best of times, never mind during a pandemic, given the geo-political and economic headwinds. The traditional approach to mitigating equity risk and the associated variability of returns is to add varying amounts of bonds and diversify through a mix of corporate and government securities. You or your advisor would look at other risks such as the credit quality of the issuer and also duration (a measure of a bond’s sensitivity to changes in interest rates).
In today’s environment, the forecast is for sustained periods of low interest rates and bond yields. With inflation running around 2%, the real return from bonds these days is zero at best and very likely negative – especially in a taxable account. A six-year Bell Canada Bond maturing in August 2026 currently yields about 2.90%. A five-year government of Canada treasury bond maturing in September 2025 yields about 0.30%. The average Canadian bond fund yields about 2.50% (source: Morningstar). Other than reduced variability, bonds are not going to provide you with an oceanfront view let alone a long-term sustainable retirement income. How can one expect to get ahead financially in this environment and not outlive your investment income?
To address this situation, you needn’t look further than private investments; Canada Pension Plan, OMERS, Ontario Teachers Pension Plan, Harvard Endowment, etc. all embrace both income oriented and private equity. Private Income investments often provide similar stability of price compared to public bonds yet deliver predictably higher yields. It is said that “the wealthy invest differently” and the wealthy have been using private investments for years, so why not you? There are many such high quality, proven private investments that are income oriented, and have predictable yields ranging from 6% to 9%. While often not quite as liquid as the public bond market, most investors are more than happy to trade off a much higher income yield with a wait time of one to six months for liquidity. To help identify liquidity needs, we utilize an investment matrix to determine just how much exposure to private investments is suitable for a client. Also, Mandeville portfolio managers can act as your accredited investor so you can gain access to invest in this asset class. This is because to play in the “private sandbox” you must meet a prospectus-exemption, which typically involves having net income exceeding $200,000 for each of the past two years, or greater than $1 million in net liquid assets. Not easy for most! Working with a Portfolio Manager in a managed account relationship provides another avenue to prospectus-exemption and access to the world of private investing.
Don’t let low interest rates or lack of access hold you back from obtaining the wealth you desire. For further information on just how powerful private investments can be in creating and preserving wealth, please contact us. Combined with an Investment Policy Statement and a written Financial Plan, you greatly increase your chances of viewing the ocean instead of a parking lot.
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