Lately, I’ve been catching a bit more flack on social media for what some interpret as overly conservative — or even bearish — market views. Without context, I get how that perception can form. But this isn’t unusual. Those of us who focus on managing risk tend to hear the “I told you so” chorus after markets rebound. It comes with the territory. Ironically, that kind of sentiment often shows up near the end of a cycle.

I remember vividly when bitcoin was hitting new highs a few years ago. I received a voicemail that simply said, “Enjoy staying poor, old man.” That kind of bravado tends to show up just before things fall apart. It’s not a new phenomenon; it’s a feature of euphoria.

But here’s the cold, hard truth: I didn’t know where the market was going next, and nor do I now. And neither did the person who left that message. Nor does any other portfolio manager or financial pundit, no matter how confident — or loud — they sound.

Because in investing, it ultimately comes down to two paths. Both are valid. But each comes with a cost of entry.

Path One: Go long and hold on

The first path is to go long highly volatile markets such as the Nasdaq or the tech-heavy S&P 500. If you want to target double-digit annual returns, you have to be willing to accept the large drawdowns that come with it. And you better hope your timing is right because going all-in just before a 1999, 2007, 2019, or 2021-style peak can be devastating, especially if you’re retired or nearing retirement and don’t want to experience sudden, large drops to your life savings.

Let’s look at the numbers. Since January 1994, over the past 30.5 years, the S&P 500 has delivered an impressive annualized return of 10.4 per cent. The best year saw a gain of 35.8 per cent. But the worst? A gut-wrenching 37 per cent drop.

Now ask yourself: If you had spent 20 years saving $1 million, would you be okay watching it fall to $560,000 during the 2002 bottom? Or to $499,000 in February 2009? Or even to $775,000 in September 2022? The two largest drawdowns were underwater for 4.5 years and took three to more than 3.5 years to recover.

If you’re young, with decades ahead of you, maybe that’s acceptable. You have time to recover, and you can even take advantage of those drops to add more to your portfolio. But if you’re in or near retirement, those drawdowns aren’t just numbers, they’re lifestyle-altering events. They can derail plans, delay retirement, or force you to sell assets at the worst possible time.

Path Two: Diversify and sleep at night

The second path is to diversify. Let’s say you allocate 35 per cent to bonds and five per cent to gold. That’s not radical, it’s just balanced. Over the same 30.5-year period, this diversified portfolio still delivered a solid 8.4 per cent annualized return. The best year? A gain of 27.9 per cent. The worst? A loss of 20.2 per cent.

That’s still a drawdown, but it’s a very different experience. Your $1 million would have dropped to $780,000 in 2002, $700,000 in 2009, and $880,000 in 2022. Not painless but far more manageable. And for many retirees, that difference is the line between staying the course and panicking. The two largest drawdowns were underwater for only 2.5 years and only took one to more than 1.5 years to recover.

That said, 2022 was a wake-up call. It was one of the rare years when both stocks and bonds fell sharply. The S&P 500 lost 24.54 per cent, and the diversified bond/stock/gold portfolio still dropped 20.57 per cent. Bonds, which traditionally act as a cushion during equity selloffs, failed to provide meaningful protection. This was a notable event, and a reminder that even conservative portfolios need to evolve.

In today’s environment, relying solely on bonds as a risk management tool may no longer be enough. Rising inflation, tighter monetary policy and shifting correlations mean investors must look beyond traditional asset classes. Structured notes, alternatives and other tools can offer more effective ways to manage downside risk without giving up the upside entirely.

It’s not about being right. It’s about being ready

The point here isn’t to say one path is better than the other. It’s to highlight the trade-offs. High returns come with high volatility. Lower volatility comes with slightly lower returns. But the real question is: What can you live with?

Risk tolerance isn’t just a number on a questionnaire. It’s how you feel when your portfolio drops 30 per cent or more. It’s whether you can sleep at night, stay invested and avoid making emotional decisions. Because the biggest threat to your portfolio isn’t the market. It’s how you respond to it.

Why I manage risk

So yes, I manage risk. Not because I’m bearish. Not because I’m trying to time the market. But because I’ve seen what happens when people take on more risk than they can handle or are comfortable with. I’ve seen portfolios implode not because of bad investments but because of bad behaviour: panic selling, chasing returns, abandoning plans.

And I’ve also seen the power of resilience, of portfolios that bend but don’t break; of strategies that deliver peace of mind, not just performance.

So if that makes me conservative, I’ll wear it proudly. Because in the end, investing isn’t about winning arguments on social media. It’s about helping people live well, sleep soundly and stay invested through the storm.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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