At some point in 2021, the likelihood of an epidemic will increase. With the global population less devastated by Kovid-19, expectations of an economic recovery are rising.
Looking at the future of this post-pandemic, financial advisors are taking steps to position their clients for a better tomorrow. Portfolio management requires constant review, but planning for labor-market return and changes in consumer behavior presents unique challenges.
With US stock markets near all-time highs, expectations for recovery are mixed with apprehensions about more equity on the prefix. By one measure, recent stocks were more expensive relative to earnings than at any time before the 1929 US market crash.
“If customers are investing new money in the market, then we are doing dollar-cost-averaging because of where the market is today,” said Jennifer Weber, a certified financial planner at Lake Success, “It gives customers peace of mind.” . , Especially if they are worried about how high the market is now.
For long-term investors, shares remain a potential source of profit even when short-term declines occur. So consultants are trying to find sweet spots within a frosty market.
Weber states that valuations are more attractive for value stocks after years of growth stocks. So his team is gradually reducing customer exposure to what he calls “blue-chip growth” offerings, such as well-known names in the technology sector, in favor of value stocks. Weber said, “Risk and volatility toward growth are at their peak.”
To navigate volatile swings, advisors often look to bonds to stabilize a portfolio. But the use of bonds to capitalize on post-epidemic recovery also carries risks. John Henderson, a certified financial planner in Walnut Creek, California, expresses concern about skyrocketing global debt levels fueled by massive government spending.
“This can provide a rude awakening. We should see a reverse from the last two decades of falling interest rates,” he said. “Many investors have never experienced a rising interest rate environment. People may not be ready for this. “
To reduce this risk for its clients, Henderson is considering a reduction in the average duration of fixed-income bonds in the portfolio. This can present a challenge for some retirees or pre-retirees who prefer a steady income stream.
“One way to gradually shorten the duration in a ladder portfolio is to stop the hit and not replace the maturing bonds with the new, longer maturity bonds that would normally be bought to continue up the ladder . ” Short-term bonds are less susceptible to interest rate changes than long-term bonds.
The Federal Reserve says it intends to keep its benchmark lending rate near zero by the end of 2023. But some advisors warn investors not to assume lower rates, which will remain during that period.
Brian Murphy, a consultant at Wakefield, RI, said, “In actual practice, the Fed may fall behind the curve, play catch-up and be forced to raise rates faster than anticipated, especially if If the economy is overheating “.
He adds that rising prices for base metals “can drive up higher inflation,” with a surge in commodity prices and even bitcoin.
In the race to profit from the post-epidemic recovery, existing investors may take undue risks. Yet in this situation the cardinal rule of maintaining a cash fund for rainy days matters more than ever.
“Don’t forget about your six-month emergency fund,” said Murphy. While earning next-to-nothing on cash may prompt investors to chase higher yields, he warns that risk may surpass the reward of slightly higher returns.
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