One year after the fall of Lehman Brothers Holdings Inc. and the start of the financial meltdown, investors still appear to be anxious that a market collapse could happen again — and they're changing how they invest as a result.
“I think it [Lehman and the market meltdown] changed Main Street more than it changed Wall Street,” said Kirk Kinder, owner of financial advisory firm Picket Fence Financial LLC of Bel Air, Md. “The feeling is like someone who has been in a car accident and has been stabilized. They don't feel the imminent threat of death, but they know they are in a precarious position.”
Clients are still somewhat shellshocked, advisers said, pointing out that their clients are now more anxious about systemic risk than ever. “They don't
trust the system,” said Scott Noyes, president of Noyes Capital Management LLC of New Vernon, N.J., which has $46 million in assets under management. “And nothing has changed to change that point of view.”
As a result, many clients have become more conservative in their approach to investing, Mr. Noyes added. “Buy-and-hold has now become ‘buy-and-hope.' I think the downturn will promote more active trading from the clients and the advisers,” he said.
Mr. Kinder said he is reducing equity allocations in an average portfolio by 10% to 15%. “I am putting a little more into short-term corporate bonds and some into [Treasury inflation-protected securities],” he said.
Mr. Noyes, for his part, is advising his clients to maintain a portfolio of conservative fixed-income investments for the foreseeable future. “Equity investments are on a shorter leash,” he said. “I would be more prone to taking profits and getting out if the markets start going down. I use a mix of mutual funds and [exchange-traded funds]. But I am now also using ETFs for the passively managed mutual funds I owned previously.”
Clients are re-balancing and in many cases are resetting their target asset allocations, said Rick Miller, chief executive of Sensible Financial Planning & Management LLC of Cambridge, Mass, which manages $170 million in assets.
Many of his clients are reducing their equity exposure by five to ten percentage points. “I think people would be foolish not to think this could happen again,” Mr. Miller said. “We have had market declines of more than 40% three times in the last 100 years.”
A lot of clients are rethinking their tactical approach, said Carlo Panaccione, the co-founder and principal at Navigation Group Wealth Planning and Management Services Inc. of Redwood City, Calif., which has $200 million in assets under management.
“They are not only reassessing equities, but are reevaluating bond risk as well,” he said. “We learned last year that risk can come in all forms.”
To combat correlated market risks, some investors are adding alternative investments — such as commodities, long-short funds and emerging-markets debt — to lower volatility, Mr. Panaccione said.
Clients are still nervous about systemic risk, but the scandal involving Bernard L. Madoff has been a bigger source of anxiety than the Lehman failure for high-net-worth clients, said Barry Glassman, president of Glassman Wealth Services LLC of McLean, Va., which manages $250 million in assets. “That has caused investors to ask a lot more questions,” he said.
