Among the points made here is that investors sometimes don't realize that managers get paid bonuses even when their clients lose money. This, and other points about the need to set expectations, for example, is set out in this article that accompanies our coverage of last week's Family Wealth Report Family Office Investment Forum.

The following article is from Neil Nisker, executive chairman and chief investment officer, Our Family Office. He spoke at last week’s Family Wealth Report Family Office investment forum in New York. He recounts his presentation below.

When it comes to investing, I've learned that knowing what everyone else knows is essentially knowing nothing. That insight, borrowed from French writer Remy de Gourmont, has guided my approach throughout my career in investment management. Another critical piece of wisdom, from Professor Leon C Megginson, underscores adaptability as essential for survival – not merely strength or intelligence. These two ideas encapsulate my philosophy as CIO of Our Family Office: remain open-minded, adaptable, and willing to challenge conventional wisdom.

During my recent presentation, I shared several foundational truths to reset expectations around investing. First and foremost, investors often overlook the inherent flaw in traditional money management: many managers receive bonuses even when their clients lose money. This misalignment of incentives highlights a pervasive issue that often compromises client outcomes.

Additionally, basic arithmetic – something we learned in grade school – is still relevant. In the decade from 2000 to 2010, the S&P 500 was down over 40 per cent twice. The arithmetic is: if you’re down 40 per cent, you need to gain 67 per cent just to get back to where you were. Too often, investors forget the simplicity and importance of fundamental calculations that underpin sound investment decisions, which brings us to Warren Buffett’s famous two rules of investing: "Rule number one, never lose money. Rule number two, never forget rule number one." Despite its simplicity, it is advice that is rarely practiced consistently.

A significant shortcoming I frequently observe is the disproportionate emphasis placed on returns rather than on risks. Most advisors comfortably discuss potential upside but rarely address downside scenarios with equal rigor. In our everyday lives, we insure our lives, health, and physical assets. Why not take an approach to portfolio construction that insures against loss?

Roseanne Roseannadanna of SNL fame always said, “it just goes to show, it’s always something.” We know "once-in-a-lifetime" events happen every year. The implication is clear: portfolios must be resilient and prepared for frequent, unexpected disruptions. Such preparedness requires a deep understanding of risk, topic investors often misunderstand or underappreciate.

One fundamental principle of wealth creation that I emphasized is the "Rule of 72," which demonstrates how quickly investments double, based on their annual return rates. This simple concept, combined with the powerful effects of compounding, illustrates why strategic patience and disciplined long-term planning are vital. We believe time is the currency of the future. You can always make more money, but you can’t make more time.

Critically evaluating traditional investment metrics, such as the Sharpe Ratio, has also shaped my investment approach. While this widely used metric can offer insights into past performance relative to risk, it carries significant flaws. It looks backward, assumes a stable and universally agreed-upon "risk-free" rate, and fails to account adequately for extreme market events – the notorious "Black Swans." Relying solely on historical data is insufficient in today's volatile markets; thus, forward-thinking risk management strategies are necessary, including capital market assumptions.

At Our Family Office, we view asset allocation as the cornerstone of investing, responsible for about 90 per cent of a portfolio’s long-term performance variability. This significantly surpasses the impact of individual investment selections. Yet, effective asset allocation isn't simply diversifying investments in isolation; it involves a holistic view of an investor's total wealth, what we call "Asset Architecture™". This comprehensive approach includes not only liquid investments but also private businesses, real estate holdings, art collections, and even specialized insurance policies, creating a genuinely integrated investment strategy.

The core of our approach is constructing what I call an "All-Weather Portfolio." This portfolio includes diverse asset classes such as private equity, private credit, real estate equity, multi-strategy absolute return investments, direct lending, and other non-traditional categories. It is intentionally designed to navigate various economic climates successfully.

This strategy reflects broader institutional shifts witnessed in the investment community over recent decades. For instance, during the late David Swensen’s tenure, the Yale Endowment Portfolio significantly reduced its traditional stock-and-bond allocations from 83 per cent to about 28 per cent, increasingly embracing alternative assets. Institutional investors like the Canada Pension Plan and the Princeton Endowment Fund have similarly diversified their portfolios. These shifts underline an industry-wide recognition of the importance of diversified risk exposure and adaptive allocation strategies.

My team and I meticulously establish our capital market assumptions, emphasizing conservative, realistic expectations for returns, volatility, and liquidity constraints. We consciously integrate these assumptions into every stage of portfolio construction, thereby creating a disciplined investment approach that blends traditional and non-traditional asset classes effectively.

To demonstrate the efficacy of our strategy, we employ our proprietary Simple Investment Ratio (SIR)™, which measures returns relative to volatility more intuitively and simply than traditional metrics. Our All-Weather Portfolio consistently shows superior risk-adjusted performance compared with benchmarks such as the S&P 500, TSX, and typical 60/40 portfolios. This outperformance validates our comprehensive and cautious investment approach.

Our investment platform balances traditional and non-traditional investments, combining robust income generation with strategic capital appreciation. Key elements include private mortgages, diversified income strategies, high-quality short-term bonds, private equity, real estate income, and strategic absolute-return vehicles. This carefully structured approach ensures resilience and adaptability, protecting and growing wealth through all market cycles.

Ultimately, our goal is clear: manage and grow client wealth sustainably by embracing a broader, more comprehensive approach to risk and return. We remain dedicated to understanding each client's complete financial landscape, adapting proactively to changing market conditions, and rigorously managing risks.

We serve very demanding families: when markets are up, they expect to be up, and when markets are down, they expect to be up. Our innovative, long-term strategies underscore our commitment to safeguarding and enhancing the wealth entrusted to our care. Even in market drawdowns, our track record has demonstrated that this approach has been successful.