Jeff Benjamin

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Life in the time of folderol makes advising clients tough

Playing portfolio defense in the face of Washington's brinksmanship is no easy trick

Oct 26, 2012 @ 3:40 pm

By Jeff Benjamin

Financial advice
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The U.S. economy in the third quarter grew slightly better than economists expected, but nobody really cares because most investors are too focused on whether Washington will let the country slide down the drain.

This morning's report showing that gross domestic product grew by an annualized rate of 2% in the third quarter, beating the 1.8% consensus estimate, barely moves the needle, according to Lane Jones, chief investment officer of Evensky & Katz LLC.

“I would call that very modest growth and certainly not the level of growth the U.S. will need long-term for job growth or to deal with the ballooning deficit,” he said.

Like a lot of advisory firms these days, Evensky & Katz has embraced a keen interest in U.S. fiscal and monetary policy, with a specific focus on the year-end fiscal cliff.

It is not every year that financial advisers find themselves guiding client portfolios past a closely contested presidential election and toward a raft of spending cuts and tax hikes that, if left alone, will quickly drive the economy back into a recession.

“We started implementing some changes to portfolios starting in late-September through mid-October,” Mr. Jones said.

Part of the changes involved some portfolio rebalancing following the strong equity run over the summer months, but there was also some defensive positioning, he said.

One of the portfolio additions was the iPath S&P 500 VIX ETN Ticker:(XVZ), as a hedge against pending market volatility. “It's negatively correlated to equities, and it works as an asset that will potentially benefit if volatility shoots through the roof,” he said.

Another move to reduce some risk exposure included the addition of PowerShares S&P High Quality ETF Ticker:(SPHQ). “We're trying to help people get a little smoother ride as we approach the fiscal cliff,” Mr. Jones added.

Lauren Locker, founder of Locker Financial Services LLC, said her objective is to keep clients “thinking long-term about their ultimate investment goals and strategies.”

“We have to put things into the perspective of their specific, individual situation, instead of talking about these hot button issues in broad generalities,” she added. “That's how we can best serve our clients in this politically-charged and volatile climate.”

However, she added that much effort and attention is now being paid to clearing up “misconceptions that come from the partial and blatantly incorrect stuff that's passed off as fact that shows up everywhere today.”

Ms. Locker explained that it all adds up to a “personal cliff” for many of her clients.

“There's a lot of fear expressed regarding the future of Social Security and Medicare, as well as a lot of ignorance about the specifics of the Patient Protection and Affordable Care Act,” she said. “ The majority of my clients intend to express their opinions about the fiscal management of this country through their vote.”


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