Every investor needs a measuring tool. Without one, there is no way to know whether a portfolio is growing or an advisor is making prudent decisions.
Broad-market indices are often the default choice, and for good reason: they are simple, transparent, and easy to check daily. In a plain 60/40 or 80/20 portfolio, the MSCI World Index or the FTSE Canada Universe Bond Index can be fair proxies for International Equities or Fixed Income. But are they an analogous benchmark?
High-net-worth portfolios are not your simple, one-size-fits-all asset allocations. A client with a concentrated stake in a family business, significant real estate, or institutional access to private credit or equity won’t find their full picture represented when tracking an index. Neither would it capture different investing styles, methodologies, outlooks, or changing global contexts; not to mention the client’s unique risk tolerance, cash flow needs, and financial goals. It’s not comparing apples to apples, and, quite frankly, it was never designed to. There are a few reasons why.
A prevalent market myth (one that Sharon Watkins and Brent Pickerl discuss in Sandstone Speaks: Headlines, Headwinds & Hidden Currents) is that buying an index means lower risk because you’re diversifying across thousands of companies. Ironically, many indices have become very concentrated. Take the MSCI Emerging Markets Index, for example. It's had a stellar year and comprises 1,202 companies, ostensibly spanning the breadth of emerging markets. But the benchmark is disproportionately concentrated in just three semiconductor companies (TSMC, Samsung Electronics, and SK Hynix), which are technology bellwethers more closely tied to developed-market dynamics than to a typical emerging-markets narrative. The result is an index that looks diversified on paper but isn't in practice, leaving investors exposed to concentrated risk on the way down.
We tell clients that our objective is to enhance yield while minimizing volatility. We do this through our dividend growth strategy (“capital may fluctuate but you get paid” ~ Sharon) and global diversification. As institutional investors, we give our clients access to private market alternatives and exposure to international investment opportunities that spread risk across sectors and geographies while opening additional avenues for upside. A long-term investment strategy suited to each individual client’s risk profile should account for their ability (their financial capacity to take on risk), tolerance (their comfort with risk), and behaviour (how they actually respond to risk) regarding volatility.
Beyond the psychological, the strategy also needs to reflect:
Cash flow needs: How much money the client requires from the portfolio, and when.
Liquidity constraints: How quickly assets may need to be converted to cash.
Concentration risk: How the portfolio fits into their bigger picture. E.g., an energy executive holding vested shares already has sector exposure through their career, so the portfolio can diversify away from Energy rather than over-allocating to it.
A more holistic way to measure whether your portfolio is performing is to consider what you want your wealth to do. One could say it’s a mindset that tracks goals rather than returns, though both are certainly important and work in tandem. The one is simply the means while the other is the end.
Over the long term, if you’re investing for 20-30+ years with an 8-9% annual rate of return amid volatility swings (down 15% in some years and up 20% in others), looking at what the portfolio is meant to serve is what matters. Steady cash flow? Capital preservation? The ability to keep issuing grants into the next generation? Or is it a down payment for your children, a grandchild's education, that coastal home, or the once-in-a-lifetime trip to Santiago de Compostela or the Dolomites. Your portfolio is designed for your life and the blueprint is built on relationship, a wealth manager who knows you and your family.
This framing changes the type of evaluation considerations. Are you on track to meet your goals? Is your return appropriate for the risk you are taking? Do your strategy and your objectives still align with your timelines? What about your tax or estate planning picture? And in periods of volatility, can you stay the course, or do behavioural biases like loss aversion or keeping up with the Joneses take over the strategy? A goals-based approach helps you tune out the headlines and stay focused on your plan.
Good financial planning should also stress-test the “what if” scenarios. Big tax bills, inflation, living longer, home repairs, stock market shocks, specialized healthcare, etc. Unplanned expenses are often not addressed in most financial plans but can be the most disruptive. At SANDSTONE, we want to make sure you understand how different events may affect your portfolio and cash flow so that we can build resilience into the plan to absorb those impacts.
Finally, how well is your financial life architected? In our 20+ years working with multi-family offices, the single biggest driver of client satisfaction is a fully coordinated financial blueprint. That requires someone who sees the bigger picture in all its complexity and brings deep contextual understanding and trust. A high-net-worth family typically assembles a team of highly specialized professionals: their investment manager, CPA, estate attorney, business attorney, insurance specialist, private banker, among others. Making sure these don’t become fragmented silos, but instead work together as a single strategy, is paramount to achieving the client’s wealth goals.
Our clients’ portfolios are built around their cash flow needs, risk tolerance, time horizon, and unique family picture, so they will move differently than any single index, and that's by design. The right measure of success is whether it's on track or exceeding your goals.
If mapping out your big-picture blueprint sounds like something you’d be interested in exploring, give us a call.
Find confidence during confusing times by meeting with one of our wealth professionals.