Investors may slide back into equities. Should you?

Cash-heavy since 2011, the affluent say they're ready to buy international stocks
APR 13, 2014
After watching the stock market climb from peak to peak last year, investors are finally starting to warm up to equities. More than 85% of investors are feeling optimistic about the investment landscape, and 74% think stocks have the greatest potential of any major asset class, according to a survey of 500 affluent investors released Monday by Legg Mason Global Asset Management. The survey was conducted last December and January. The survey also shows that investors still hold relatively conservative portfolios but are increasingly willing to increase exposure to international assets. “At the time this survey was conducted, investors had experienced in the U.S. a pretty positive stock market,” said Matthew Schiffman, managing director and head of global marketing at Legg Mason Global Asset Management. “Markets are typically forward looking, while investors are typically backward looking.” While an increased willingness to take on exposure to U.S. equities is healthy, now isn't the time to chase yesterday's gains, advisers said. In the first quarter of 2014, the S&P 500 gained 1.3%. This still qualifies as a bull market, but is a sizable slowdown from the 29.6% rally that the index experienced in 2013. And last week, the S&P 500 dropped 2.6%, its worst weekly performance since 2012. Strategists are still finding value in equities as the bull ages “Investors who have been exposed to U.S. stocks all through the recession and the bull market should be looking to take money out of overpriced assets and reallocate funds elsewhere,” said Sarah Tims, a partner and senior wealth manager at RMB Capital Management. Still, it's good to see that investors who sold off in a panic in 2008 are finally getting off of the sidelines, Ms. Tims said. However, in a market that hasn't seen a 10% correction since 2011, investors would be wise to put about 20% of a portfolio into alternative investments, which offer some protection in the case of a steep slide in stocks. Even though investors are feeling more emboldened, they haven't turned that into action as many are still holding fairly conservative portfolios. The average respondent put 41% of his or her portfolio into equities, 22% in cash, and 21% into fixed income. This conservative equity allocation is the case among relatively young investors, with those between the ages of 40 and 54 putting only 43% of their portfolios into stocks. “This is definitely a little cash heavy,” said Brian Frederick, an adviser at Stillwater Financial Partners. “The only rationale that I can think of is that investors are using that cash as a holding tank until the market slows down and valuations improve.” One area of the survey where investors seem to be right on the money is international equities. Respondents planned on upping allocations to these assets to about 14% this year, compared with 11% last year. “America is already five years out of its recession,” said Ms. Tims. “Europe, meanwhile, has turned the corner more recently. This means that the continent's small and midcap stocks could do very well going forward.”

Latest News

Advisor moves: LPL lands $350M veteran advisor duo in Florida
Advisor moves: LPL lands $350M veteran advisor duo in Florida

Also, Raymond James's employee advisor channel adds breakaways from Wells Fargo and Stifel, while UBS welcomes an ex-Morgan Stanley duo in Indiana.

SEC accuses crypto firm founder of running $425 million Ponzi scheme
SEC accuses crypto firm founder of running $425 million Ponzi scheme

It promised guaranteed principal and 10% monthly returns. The SEC says it invested nothing.

MassMutual Ascend tops $2 billion in RIA annuity sales as advisors warm to income products
MassMutual Ascend tops $2 billion in RIA annuity sales as advisors warm to income products

Ten years after entering the fee-based annuity market, MassMutual Ascend says nearly half its lifetime sales came in the past two years alone – but barriers remain among fee-only advisors.

Fintech bytes: Wealth tech firms target advisor productivity with new integrations
Fintech bytes: Wealth tech firms target advisor productivity with new integrations

Amplify, WealthReach, Zeplyn and Zocks have unveiled partnerships aimed at automating portfolio management, content creation, account opening, and client communication.

Trump Account contributions to get boost from new employer rules
Trump Account contributions to get boost from new employer rules

New Treasury and IRS proposals would let employers add tax-free payroll contributions to the retirement accounts as advisors weigh the fit for client families.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income