More Evidence Your Clients Need Alternative Strategies

by | Apr 17, 2017 | Alternative Income, Option Trading, Technical Analysis

Source: Vanguard

Regular readers of our blog know we’ve written more than a few articles pointing to the need for alternatives strategies. Recently I opened an email from Vanguard that offered probabilities for various portfolios forward return projections. If you want to read for yourself check out the link as it is a well-done piece..

A few things that struck me that support our thesis for the need for alternatives in client portfolios. In the above, the graph is a ten-year annualized real return projection along with corresponding real historical returns over several periods. Broken down between an 80/20, 60/40, and 20/40 portfolio the vertical white sliver in the middle represents the median projection. Put in a table posted below you can see estimated annualized return over the next 10 years for the 60/40 was 3.8%. For a fixed income heavy portfolio of 20/80 it was only 1.5%.

Source: Vanguard

The challenge for many of you with clients heading towards retirement: how do you generate enough return, in various market environments, to satisfy their expected account drawdowns? If returns do wind up being around the median projections, will something like the standard 4% withdrawal rate work without your clients running out of cash early? What if the market turns bearish? Not to say it would be the 2008 variety, but some period that produced negative real returns?

Many advisors are meeting this challenge by looking at bringing in alternatives to portfolios that are not completely dependent on market direction. Others realize that equities, of the standard asset classes, still offer the best historical returns but look for hedged versions to reduce significant downside. Now more than ever, strategies that once were only offered thru hedge funds are becoming available to advisors and their clients.

If you are an advisor using only standard asset classes and want to see how you can map into the full complement of ZEGA strategies, give us a call.