The biggest investment headache for advisers right now is what to do about cautious portfolios.

With equities, bonds and everything in between selling off, most clients are seeing red lines and negative figures when they look at their year-to-date performance.

Poor performance is not necessarily a problem for UK advisers. While no one is thrilled to see their investments fall, clients in riskier strategies with heavier equity allocation understand there is a trade-off between returns and risk. The profession does a good job of educating its clients these days. After a period of extraordinary returns, they are now, on the whole, prepared to accept a little bit of volatility.

It is a different picture for those in cautious portfolios.

The main reason for putting a client into a safer solution weighted towards bonds is they do not want to lose much money in reaching their goals, meaning they are happy to sacrifice returns in favour of certainty during difficult times.

Poor performance from bonds this year has thrown a spanner in the works. We can see this in action by looking at the Vanguard LifeStrategy range. These passive multi-asset funds are a useful model for thinking about how advisers invest. They are incredibly popular, partly because they have performed well and partly because fees are low.

They also represent five different risk bands for clients, with the lowest allocating around 20% to equities and the highest allocating 100%. Vanguard’s range broadly reflects the allocation models advisers use, even if they build their own portfolios or outsource to a different provider.

The table above illustrates how maximum drawdowns have changed over the past nine years in each LifeStrategy fund. Maximum drawdowns are important to advisers because they help illustrate how risky a strategy can be by showing the largest loss over a period.

All the LifeStrategy funds have seen their maximum drawdowns grow over the past three years compared with the previous two periods, demonstrating that investors have seen much bigger swings in performance than previously.

What stands out is that the most cautious clients have not been protected from losses. The typical client investing in a cautious fund such as LifeStrategy 20 would only want to lose a very small amount on their investments at most. But over the past three years, their maximum loss would be higher than someone in the supposedly riskier LifeStrategy 40 or 60 funds, and only a little bit lower than in LifeStrategy80.

Such clients will no doubt be calling advisers to ask them what on earth is going on. That is a difficult conversation when the client expects stability from their portfolio but is instead greeted, in the worst case, with a 13% loss compared with when they last checked.

LifeStrategy 20 may just be one fund, but the wider drawdowns reflect what I have been told by advisers. They say there is not much out there now for clients who need low volatility.

Advisers also know there is no magic solution. They are not looking for something that will blow the lights on returns without being volatile. But they are looking for a solution that is stable enough for clients who do not want to see big swings in performance.

Asset managers may be tempted to reach for alternative strategies to demonstrate there are returns out there. But remember: advisers and their clients value simplicity.

There is no point in creating an inflation-buster for these clients if it puts their goals at risk. What will impress advisers is a solution that can be shown to be reliable in difficult times.

This may mean reaching for those standard deviation charts or Sharpe ratio explainers. It definitely means telling a different story from the growth-driven returns we have seen so much of in recent history.

Vanguard LifeStrategy: The bigger the allocation to bonds, the greater the drawdown

This chart shows the dramatic increase in bond volatility this year compared to each of the previous nine years. While LifeStrategy 20 saw the biggest maximum drawdowns of all the range once before, hitting 5% in the 12 months starting from September 2012, in the same period this year its maximum drawdown is more than double, at 13%. In fact, LifeStrategy 100 is the only fund in the range not to record a double-figures maximum drawdown.

Charles Walmsley is the editor of Citywire New Model Adviser, Citywire’s publication for professional financial planners.