All the following information is taken from Steve Blumenthal’s newsletter, “On My Radar: Balancing Offense and Defense, Equity Market Valuations and What They Tell Us About Coming Returns,” dated March 8, 2019.
According to Blumenthal, the goal of any investment portfolio is to capture growth while preserving capital, although these two may conflict with each other. Taking more risk can suggest better returns with the risk of losses in the event of a market downturn. While being more conservative in order to preserve capital could mean missing out on growth opportunities, no matter if in mutual funds, ETF (Exchange Traded Funds) or other investment tools.
Markets have periods of Bullish growth and Bearish decline. Depending on where we are in time, considering inflation, interest rates and other factors. Experts give opinions on the development of the future trend of the stock market.
Mr. Blumenthal suggests a dozen graphs and charts highlighting the fact that according to experts consulted, the returns we should get from traditional markets over the next TEN YEARS should be minimal or even nil.
Two separates charts to explain:
The first chart shows: “The Household Equities Percentage vs Subsequent 10-Year of the S & P 500 Index Total Return” (SPX-500 of the biggest stock on the U.S. stock market).
-The solid line represents the household exposure to equities, as a percentage, including mutual funds and pension funds. We are around 52.5%.
-The dotted line represents the average annual return for the next 10 years when reading the solid line.
Here’s an example, in 2000, household exposure to equities was around 62% (scale on the left side of the chart). Referring to the right side of the graph, if it is true, the average return for the next 10 years could be expected to be about -3% per year on average.
This prediction proved more or less accurate, the reality giving -2% on average between the years 2000 and 2010. So, today, with a correlation of 0.89 (89%), we could foresee that the return on US equities for the next 10 years would be on average 3% per year before inflation, including dividends minus the commissions. (e.g.2% MER in a mutual fund).
In summary, the more households who are invested in the stock market; the lower will be the return of the next ten years.
The second chart deals with the expectations of the Global Investment Financial firm – GMO. This firm publishes its forecasts since the early 90’s and obtains a correlation of approximately 0.97 (1.0 being a perfect correlation).
For the next 7 years, GMO anticipates that US equity returns will average -3.7% and the US bonds expected return will be of -0.8%.
These forecasts issued by GMO are based on the reasonable beliefs of the firm and do not guarantee the future performance of the market
Cape Cove offers several investments opportunities that have no or little correlation with traditional markets. Active Portfolio Management with Alternative investments, option portfolios, algorithmic products – that also offers protection from the down side of the market, Private Real Estate Investment Trusts (REITs), Exempt Market Products (Private Markets), Flow through shares ( Tax-efficient products), Pre-IPO (Initial Public offering).
We believe in this market because at the end of the day we offer our clients an investment category that has very little to no correlation with traditional Stock Markets, while suggesting respectable returns. While always considering the risk associated with these types of investments. What a powerful tool to offer clients to diversify their portfolio and reduce volatility.
The vision for Cape Cove Financial Management is to offer diversified investments opportunities, so that our clients can enjoy the retirement that they desire and deserve.
Our objective is that, even if traditional markets do not provide the desired returns, we can offer solutions that will help you achieve your financial goals.
WARNING. This announcement does not constitute an offer of securities on which you can rely to make your investment decision. The offer is qualified in its entirety by the offering memorandum of the issuer. Please read the Offering Memorandum before making any investment decision. The graphics and several comments are from Steve Blumenthal’s publication, On My Radar, March 8, 2019