Kevin, an early 30s software engineer living in Toronto, had long taken advantage of the booming market opportunities. For the last decade, he’s invested almost entirely in high-growth technology stocks. First because he felt more confident in buying shares of companies he was familiar with, and second because it seemed nothing was slowing them down.
Like most investors, Kevin continued to take advantage of the early pandemic dip and increasingly popular tech stocks that became crucial in the new remote world.
As the high-growth sector started to plateau and then eventually decline, he did what he thought he should do, which was just to wait it out. It would go back up eventually, right?
With no stopping in sight, the anxiety of his losses started to take hold. Glancing at his portfolio went from weekly to monthly to not remembering the last time he had logged in to his WealthSimple account. It felt like waiting for a rebound was his only option, but with all of his investments being consolidated into one sector, the losses were felt more than others who had diversified.
Kevin came across Global Predictions when listening to one of his favorite podcasts, Build Wealth Canada. Hesitant to confront the state of his portfolio, he finally signed up and was able to start grappling with where he stood.
No surprise he was significantly down from the peak pandemic stock market boom.
Diving into what made up his Portfolio Score helped him immediately realize where his problems lay. It wasn’t good, but it was actionable! His Downside Protection score was the culprit.
Diversification wasn’t something he historically took seriously when investing, but the current macro environment had him realize he had to address it and protect himself from further shocks.
His portfolio was made up almost entirely of high-growth stocks and suffered from not having a diversified portfolio that could withstand macro shifts. His most impactful recommendations addressed selling a few of his most liquidity-exposed and interest-rate holdings, such as ARKK, META, and PTON, while buying more of his other stocks that were cheaper and more durable. With his additional cash on hand, it recommended a few ETFs to better balance his exposures (like USO, VNQ, and IAU), letting him diversify without sacrificing his risk-adjusted returns.
Kevin started to become more confident after applying recommendations, as each one described the solution and the reason for it. It was clear that his previous strategy of only buying the hot stocks simply concentrated his risk too much.
Being able to apply all these recommendations and create a Draft Portfolio was another eye-opening experience. He didn’t need to take too much-concentrated risk to get the type of expected returns he wanted. Adding ETFs that helped his portfolio become more balanced and less exposed to liquidity and interest rates increased his total expected returns from 2.7% to 3.9%.
The market downturn was a significant learning experience for Kevin and forced him to adopt a more serious approach to portfolio management. Key to this was building a foundational core of holdings that had a more neutral exposure to macro trends.
“I took not selling during a downturn too far by not doing anything at all. As I started to use Global Predictions, I learned that adding less risky holdings didn’t necessarily equate to fewer returns overall. By restructuring my portfolio, I was able to balance out my exposure to macro trends. Now, not having this overwhelming doom every time the market tumbles has instead empowered me to log in and see what small adjustments I can make to take advantage of the opportunities that a market downturn provides.”
