The epidemic is likely to recede at some point in 2021. With the global population not devastated by Covid-19, expectations are increasing for an economic recovery.
Looking to the post-pandemic future, financial advisors are taking steps to put their clients in place for a better tomorrow. Portfolio management requires constant review, but planning for a return to the job market and shifts in consumer behavior present unique challenges.
With US stock markets approaching all-time highs, hopes for a recovery are mixed with concerns over exaggerated stocks on the brink of a precipice. By one measure, stocks have recently been more expensive than dividends since before the 1929 U.S. market crash.
“If clients are putting new money into the market, we’re doing more than the average cost in dollars because of where the market is today,” said Jennifer Weber, certified financial planner in Lake Success, New York. “It gives clients peace of mind, especially if they’re worried about How high is the market now. “
For long-term investors, stocks remain a potential source of gains even in the event of short-term falls. So advisors are trying to find sweet spots within a foamy market.
Weber says valuations are more attractive for value stocks after years of rally in growth stocks. So her team is gradually working to reduce client exposure to what it calls “premium growth” offerings, like household names in the technology sector, in favor of value stocks. “The risks and volatility on the growth side are reaching their peak,” said Weber.
To cope with volatile volatility, advisors often look to bonds to stabilize a portfolio. But using bonds to benefit from the post-pandemic recovery carries risks as well. John Henderson, a certified financial planner in Walnut Creek, California, is concerned about the skyrocketing global debt levels fueled by massive government spending.
“This could provide a rude awakening if we see a reversal of the past two decades of low interest rates,” he said. Many investors have not seen an increased interest rate environment. People may not be ready for that. “
To mitigate this risk to its clients, Henderson is considering reducing the average duration of fixed-income bonds in portfolios. This can be a challenge for some retirees or retirees who prioritize a steady income stream.
“One way to gradually shorten the duration in the tiered portfolio is to pause and not replace the maturing bonds with new, longer-maturing bonds that are usually bought to continue the ladder,” he said. Short-term bonds tend to be less sensitive to interest rate changes than long-term bonds.
The Fed says it intends to keep the benchmark lending rate near zero until the end of 2023. But some advisers are warning investors against assuming low interest rates will remain in place during that time.
Said Brian Murphy, a consultant at Wakefield, Resident International
He adds that a rise in the prices of base metals “could herald a rise in inflation,” along with a massive rise in commodity prices and even bitcoin.
In the rush to capitalize on the post-pandemic recovery, broad investors may take undue risk. However, the rule of thumb to keep a cash box for rainy days is more important than ever in this case.
“Don’t forget about your emergency fund for six months,” said Murphy. While earning money for nothing can prompt investors to chase higher returns, he cautions that risk can slightly exceed the return of better returns.