Advisers answer common investor concerns with these talking points

From market volatility to rising rates, financial pros share their insights on how to calm nervous clients

Apr 5, 2018 @ 4:00 pm

By Jeff Benjamin

Now that stock market volatility has awakened from its more than year-long slumber, investors are getting understandably nervous, which is putting financial advisers on notice.

With that in mind, we combed the financial planning universe for examples of rational and coherent responses to common client questions and concerns.

Should I get out of the market and move to cash?

"Absolutely not. We have already taken into consideration the potential for this type of market behavior, and the portfolio is positioned for this type of event.

We have ensured ample cash reserves to meet your spending needs for more than a year, and we have diversified your portfolio globally so you don't have all your money invested in the U.S. stock market.

So, you don't have to worry that all your money is susceptible to losses to that one asset class.

Most importantly, we have constructed the portfolio for a long time horizon that looks out over the next couple of decades, and we therefore don't need to react to occasional declines that occur from time to time."

— Ric Edelman, founder and executive chairman of Edelman Financial Services, which manages $21.7 billion

Why are the markets suddenly so volatile?

"This is nothing new — the volatility started the first week of the year.

There have already been five weeks in 2018 that produced higher performance than any week in all of 2017. There have also been four weeks that produced lower performance than any week in 2017.

Because 2017 was unnaturally calm, the above average volatility this year seems much worse than it is."

— Ron Carson, founder and chief executive of Carson Group, which has $5.4 billion under management

Is the recent stock market volatility related to the threat of an international trade war?

"Yes, but that's irrelevant if you're focused on long-term investing.

Very simply, I see no other news or economic event that would explain the kind of market reactions we've seen recently.

The economy looks good, and jobs look fantastic.

If anything, these pullbacks might be good buying opportunities. If it gets serious we'll be looking at the market as a buying opportunity."

— Harold Evensky, chairman of Evensky & Katz/Foldes Financial, which manages $1.8 billion

What are you doing to protect my portfolio in this environment?

"Exposure to a truly global and diverse portfolio is the most important component of reaching long-term financial goals and objectives while minimizing risk.

Diversification reminds us how important it is for investors to resist the urge to put all their eggs in one basket, as well as emphasize that diversification retains its charm as a protection against unpredictable market events, news and activity.

In turbulent markets, non-correlated assets play an integral role in portfolio diversification and have the tremendous power to help overcome investor uncertainty and boost investor confidence."

— Jessica Iorio, executive director with The Bapis Group at HighTower, which manages more than $1 billion

Why is the Federal Reserve raising interest rates now?

"When the economy is doing well, typically the Federal Reserve takes steps to raise interest rates to try to slow down the economy and growth. Rising interest rates are a sign of a strong economy. If your portfolio is properly positioned, rising interest rates should not influence it.

If you are holding long-term bonds, you should understand how rising interest rates would influence your investment portfolio. In an interest-rate-rising economy, you want to focus on shorter duration bonds."

— John Vento, adviser at HD Vest, which has $120 million under management

Should I be worried about rising interest rates?

"Rising interest rates are good for savers and investors, but they are bad if you're a borrower or heavily indebted.

Overall, the impact of rising interest rates on bond investors is greatly overblown. Since 1987, there have been five interest rate hiking cycles. Bonds have posted positive returns in over half of those periods. The returns were favorable, despite rising interest rates, because bond investors can reinvest their coupon payments at the higher market rate."

— Nik Schuurmans, founder of Pure Portfolios, which has nearly $100 million under management

Are bonds a safe place to hide?

"The answer is mixed.

Certain sectors, such as pools of residential mortgages and U.S. short- to medium-term-duration government bonds seem safe to us.

TIPS are likely the safest, given they are inflation-protected and have no credit risk.

But even nominal short- to medium-term-duration government bonds should be safe, as inflation would have to skyrocket quickly to suffer a significant mark-to-market hit.

We are worried about other sectors though. For example, certain segments of corporate bonds such as high yield could suffer both significant mark-to-market hits and maybe even have negative returns if enough of them default. Further, some small segments of the bond market such as sub-prime auto loans are exhibiting some worrisome signs, and could get crushed if even a mini economic slowdown hits."

— Lee Caleshu, chief investment officer at Halite Partners, which manages $150 million

Are there buying opportunities at this point?

"Absolutely. The rationale is, when we look at the market we look at several levels of analysis. The fundamental backdrop, including the state of the economy, earnings and revenues, are all positive.

In terms of valuations, with the pullback, the S&P is now around 16.5 times earnings, which is reasonable-to-attractive. That's not a bad point to enter the market.

Looking at technical factors and the number of stocks advancing versus declining, and the types of stocks still leading — those things are still positive.

When folks get nervous they tend to flock to defensive stocks. Those aren't the stocks that are leading now.

When you mix that all up, the backdrop is positive. But you don't just rush in. We expect continued churning for a bit.

What we like is consumer discretionary stocks that are tethered to strong trends in employment, consumer confidence and tax cuts. They have sold off but have wonderful fundamentals.

We also like financials."

— Jeff Krumpelman, chief investment strategist at Mariner Wealth Advisors, which manages $23 billion

What should I do with new money going into my account?

"Ten percent of my job is actually picking investments, 40% is spending the time with [clients] to develop and monitor their customized investment plan, and the other 50% is helping them not abandon that plan when emotions run high during periods of volatility and decline.

When it comes to new money, it's really all about reminding the client that the right plan expects and plans for periods of decline to occur. The worst thing they can do is to ask me, or any adviser, to tell them when to get into the market. I'll never be able to call a bottom, and you only know it's a top after it has peaked.

My point is, we don't let market noise or current events dictate our investment selections. Stick with the plan.

The question should be, what's my investment plan? And if you have that answer, the plan itself should dictate where the investments should go."

— Alex Goss, chief executive of Goss Advisors, which manages more than $3 billion


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