I was having lunch on recently with a friend, and we were talking about how much uncertainty there is in the world and in markets. He likened it to comments made in February 2002 by then U.S. Defense Secretary Donald Rumsfeld, who stood at a Pentagon podium and divided the world into three categories: things we know we know, things we know we don’t know, and things we don’t know we don’t know. Rumsfeld was widely mocked for it at the time. Two decades later, the framework has become one of the most useful tools in risk management.
This fall is a good time to sort things into those boxes.
Known Knowns: The Price of Money Has Changed
Some things are no longer debatable. Interest rates have turned. The U.S. Federal Reserve unanimously raised rates this month for the first time since 2023, and the U.S. 10-year Treasury yield rose above 5% to a 19-year high in the days before the decision.
At home, the Bank of Canada held its policy rate at 2.25%, a seventh straight hold, but the tone has shifted. The Bank said upside risks to inflation have increased, while new tariffs make growth prospects more uncertain. Those tariffs are a known known too: the new U.S. duties include 50% tariffs on a wide range of Canadian goods, and Canada’s retaliatory tariffs took effect September 8.
We also know corporate earnings have been strong. Consensus expects 2026 earnings-per-share growth of 31% in the U.S., powered in large part by AI spending.
The practical result is that, at these levels, bonds are starting to pay a real return, before tax. A real return is what your investment earns after subtracting inflation. It measures how much your purchasing power grows, not just how many dollars you have. For example, if a bond pays 4% and inflation is 3%, the real return is roughly 1%. After tax, however, real returns for bonds are barely positive, and in many cases still negative, depending on your tax bracket.
Known Unknowns: The Questions We Can Name but Can’t Answer
This is the box where most financial media lives, and where most forecasting fails.
How far will the U.S. Federal Reserve go? Policymakers penciled in one more increase for 2026, but futures markets priced roughly 42% odds of two more. Will the Bank of Canada follow? Scotiabank, National Bank, and RBC expect a hike on October 28, while others expect another hold. The big banks’ own economists disagree, which tells you something.
How long does the Middle East conflict keep energy prices high? Will the enormous AI build-out produce profits before investor patience runs out? How will markets react to the U.S. midterms? We can name all these questions, but no one can answer them with confidence.
The right response to a known unknown isn’t a better prediction. The best investment strategies for business owners start with a portfolio that doesn’t need the prediction to be right.
Unknown Unknowns: The Ones That Actually Move Markets
By definition, unknown unknowns can’t be named. Nobody’s 2020 outlook included a global pandemic, and in early 2023, regional bank failures in the U.S. weren’t on anyone’s watch list until they were on everyone’s.
You can’t forecast your way out of this quadrant; you can only build for it. That means holding enough liquidity that you’re never a forced seller, diversifying across genuinely different sources of return, and avoiding investments that only work if nothing goes wrong.
During my time at Alberta Investment Management Corporation, the most important question in an investment committee was rarely “what do we think will happen?” It was “what happens to us if we’re wrong?” Canada’s large pension funds don’t deliver steady returns because they see the future more clearly. They deliver steady returns because they design portfolios to survive futures they didn’t see coming.
Unknown Knowns: The Quadrant Rumsfeld Skipped
Rumsfeld’s grid has a fourth box he never mentioned. If a known unknown is something we know we don’t know, an unknown known is the reverse: something we do know, but don’t let ourselves acknowledge. Put simply, they’re the things we already know, but ignore.
For investors, this is the most valuable box, because it’s the only one entirely within our control. We know fees eat into returns year after year. We know a typical index fund today is heavily tilted toward a handful of big technology companies. We know we shouldn’t sell in a panic, and many do it anyway.
When it comes to investment strategies for business owners and incorporated professionals, there’s one I see almost every week. We know that interest income earned inside a corporation is taxed at some of the highest rates in Canada. Yet many corporate portfolios are full of bonds and GICs held in exactly that account.
Often, the reason is simple: a portfolio is built from the products an advisor has and knows. If the shelf holds mutual funds, GICs and bonds, that’s what your portfolio will be made of, whatever your situation calls for. Few advisors have worked inside a pension fund, so the pension-style alternatives Canada’s largest funds rely on, such as infrastructure, private credit and real assets, are rarely on the shelf. Even if they are, in my opinion many advisors do not have the background or desire to understand the role these assets play in a portfolio.
And that points to the hardest unknown known of all. Many of us know, somewhere, that our needs have outgrown what our advisor can offer. The relationship may be friendly and long-standing, and the advisor may be doing their best with what they have. But a corporation with significant retained earnings, a tax efficient retirement cash flow stream, or a plan to pass wealth to the next generation calls for a different set of tools. We know it. We just haven’t acted on it yet.
The Takeaway
Markets will spend the coming months arguing about the known unknowns. The unknown unknowns will arrive on their own schedule. What you can do today is deal with the things you already know: the fees, the asset allocation, the tax inefficiencies, the concentration, and the behavioral traps.
And then, perhaps, close the laptop and ask yourself a more important question. This week, I watched the livestreamed funeral service for the mother of a longtime client. Among the many lessons her family shared, one question has stayed with me: What is something good you did for someone today?
Tomorrow, Monday, September 28, my mother turns 80. As new immigrants to Canada, my parents didn’t have it easy raising two kids. Both worked multiple jobs, days and nights, so that one of them was always home with us. Much of what I believe about money came from my mom long before I earned any designations: be generous in helping others, save and invest regularly, and never forget where you came from.
Happy 80th birthday, Mom. Thank you for all the good you’ve done for so many people, including me, every single day.
To explore institutional investment strategies for business owners tailored to your financial goals, connect with me on LinkedIn or book a discovery call.