As the Stanley Cup playoffs intensify, it’s tempting to become an armchair analyst, critiquing teams for missing the finals from the comfort of the couch. Judging performance from the sidelines is easy when there’s nothing personal at stake. But once the risk of loss enters the equation — when you’re the one on the ice, so to speak — the perspective shifts dramatically.

This same dynamic plays out in the world of investing. From a distance, markets can seem straightforward. With hindsight, it’s easy to point to the top-performing asset or benchmark and ask why it wasn’t more heavily weighted. But when your own capital — or more importantly, the retirement security of thousands — is on the line, the stakes are far higher, and the decisions far more complex.

Some critics argue that pension plan managers should simply adopt passive ETF strategies, suggesting that trying to outperform the market is a fool’s errand. But this view overlooks the nuanced and essential role of active management, particularly when the goal isn’t just to beat a benchmark, but to preserve capital, manage risk, and meet long-term obligations.

Consider the S&P 500. While it has delivered strong returns over the long run, it has also experienced multiple severe drawdowns — some ranging from 25 per cent to 50 per cent — over the past two decades. For an individual investor, these losses are painful. For a pension plan responsible for the livelihoods of retirees, they can be catastrophic. The consequences of such volatility are not theoretical — they are real, and they matter deeply to the people depending on those plans.

This highlights several key considerations when managing institutional portfolios.

• Risk management: Active strategies are not about chasing short-term gains, they are about managing long-term risks. The goal is to ensure sustainability and resilience through market cycles, not just to outperform in bull markets;
• Diversification: Unlike passive strategies that often concentrate in public equities, institutional investors must diversify across a broad range of global asset classes, including private equity, infrastructure, real estate and fixed income. This diversification helps reduce overall portfolio risk and smooth returns over time;
• Mandate and scale: Pension funds often operate under mandates to maximize returns without taking on undue risk. Their scale allows them to access unique investment opportunities — such as direct infrastructure projects or private market deals — that are unavailable to smaller investors. This scale is a strategic advantage, not a burden.

As portfolios grow over time, the emphasis naturally shifts from accumulation to preservation. This is where goals-based investing becomes critical. Rather than focusing on beating a benchmark or generating alpha, the objective becomes achieving a targeted return that aligns with the fund’s long-term obligations, while minimizing risk as much as possible.

The same principle applies to individuals in retirement. During their working years, they may have taken on risk to build their nest egg. But once in retirement, few are emotionally or financially prepared to weather the kind of drawdowns that can occur in public equity markets. For them, capital preservation and income stability become paramount.

This is where diversification becomes not just beneficial, but essential. In an environment where market corrections can be swift and severe, relying solely on traditional asset classes like equities and bonds may expose portfolios to significant drawdowns. To navigate this, we’ve found that incorporating investment tools like structured notes and alternative investment strategies can play a critical role in mitigating downside risk.

Structured notes, for example, can be tailored to provide downside protection while still offering exposure to market upside. They allow investors to participate in equity markets with built-in buffers or barriers that limit losses during downturns. This can be especially valuable during periods of heightened volatility or economic uncertainty.

Similarly, alternative strategies — such as market-neutral funds, managed futures, private credit or real assets — offer return streams that are less correlated with traditional markets. These strategies can act as stabilizers in a portfolio, helping to smooth returns and reduce overall volatility.

By integrating these instruments into a diversified portfolio, we’re not just spreading risk, we’re strategically positioning the portfolio to withstand a broader range of market conditions. This approach aligns with a goals-based investment philosophy, where the focus is on achieving consistent, risk-adjusted returns that support long-term objectives, rather than chasing short-term performance.

As a result, this approach brings a level of consistency, resilience, and maturity to the portfolio, qualities that are essential not just for surviving market turbulence, but for thriving through it. Just like a championship-caliber hockey team, a well-constructed investment portfolio needs depth, discipline, and a game plan that adapts to changing conditions.

By incorporating diversified strategies, managing risk proactively, and focusing on long-term goals rather than short-term wins, the portfolio is better positioned to make it through the playoffs of market cycles — and, with a bit of discipline and endurance, raise its own version of Lord Stanley’s Cup: long-term financial security and success.

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.