In my last post, I talked about how traditional investment benchmarks pull our attention away from what truly matters, mainly hitting your goals over the long run – let's stay focused on that!

Client satisfaction usually depends on whether one’s expectations line up with what happens.  Lou and I want to do everything possible to ensure these two factors align through time.   We believe it is the secret sauce to a successful advisory relationship.  So, while traditional benchmarks may not be the answer, it is important to sit down and hash out performance expectations with clients.

By this point, it should be clear that our team is quite conservative – we take pride in it.  Lou and I truly believe that our primary responsibility is to ensure high net worth families stay that way, long term.  This means that their life savings need to grow at a higher rate than their cost of living.  Therefore, inflation is an important hurdle rate. 

Various bond yields can also serve as a baseline for our performance target.  Because the families we work with have long investment horizons, the ten-, twenty-, or thirty-year Government of Canada bond yields are usually most relevant.  For shorter investment horizons, or the occasional check-up, one may compare his rolling performance against past five-year GIC rates. 

In my view, sensible return expectations flow from one of these two starting points: inflation or a risk-free interest rate.  When you allocate your savings to risk-on assets like stocks, corporate bonds, real estate, commodities, and the like, you want to be rewarded for taking those risks.  To me, outpacing inflation or a risk-free interest rate is a reward.  Do not scoff at it.  I know it does not seem glamourous, but honestly, it doesn’t take much. 

Incremental gains stack up over a long enough period.  Over a twenty-,   thirty-, or forty-year investment horizon, compounding your life savings just two percent more per year than inflation will surely do the trick.  Everything above that hurdle rate increases one’s margin of safety, which is great.  Higher returns are always welcome – we have and will continue to take them where we can – but let’s start with bounded expectations.  Again, we believe it’s the surest way to happiness.  

Let’s lay it out clearly.  Our clients’ surplus capital, or long-term investments, will be aligned with our model portfolio.  With it, we are aiming for the following rate of return:

Not this year or next year, and maybe not over the next five years.  Rather, over your entire investment time horizon.  Importantly, we cannot guarantee such performance.  Though, we do think it is important to have such a target in mind.

If you would like to learn more about the Fry Ormerod Wealth Advisory Group, please reach out to one of us today.  As noted in our previous posts, Lou and I invest our surplus capital in the same way as our clients.  We would love to show you our own long-term investment results to help you make a more informed decision about working with our team.