At some point in 2021, the pandemic is likely to subside. As the world population is less affected by Covid-19, the expectations of an economic recovery are increasing.
In the future after pandemic, financial advisers are lurking steps to position their clients for a better future. Portfolio management requires ongoing review, but planning for a return to the labor market and changes in consumer behavior present unique challenges.
As US stock markets are close at all times, hopes of recovery are mixed with fears of stock prices abysmal. By one measure, equities were recently more expensive compared to earnings than ever before, just before the 1929 US market crash.
“When customers put new money in the market, we do more dollar cost averaging because of where the market is today,” said Jennifer Weber, a certified financial planner in Lake Success, NY. “It gives customers peace of mind, especially if they are worried about how high the market is now.”
For long-term investors, equities remain a likely source of profits, even if there are short-term declines. So advisors are trying to find sweet spots within a frothy market.
Weber says valuations are more attractive for value stocks after years of rising growth stocks. Her team is therefore gradually reducing customer exposure to what she calls ‘blue-chip growth’ offerings, such as well-known names in the technology sector, in favor of value stocks. “Risk and volatility on the growth side are reaching their peak,” Weber said.
Advisors regularly look at bonds to stabilize a portfolio to explore volatile fluctuations. But using bonds to capitalize on a recovery after a pandemic also carries risks. Jon Henderson, a certified financial planner in Walnut Creek, California, expresses his concern about the rise in global debt levels fueled by massive government spending.
“It could provide a rude awakening if we see a reversal of the past two decades of falling interest rates,” he said. ‘Many investors have never experienced a rising interest rate environment. People may not be prepared for that. ”
To reduce this risk for its clients, Henderson is considering a decrease in the average duration of fixed-income bonds in portfolios. This can be a challenge for some retirees or seniors who are prioritizing a steady income stream.
‘One way to gradually shorten the duration in a portfolio with a lower position is to take a break and not replace mandatory bonds with new, longer maturity securities that would normally be purchased to continue the ladder not, ‘he said. Short-term effects tend to be less sensitive to interest rate changes than long-term effects.
The Federal Reserve says it intends to keep its standard lending rate close to zero by the end of 2023. But some advisers warn investors not to assume that low rates will remain over the period.
“In fact, the Fed could fall behind, catch up and be forced to raise rates faster than expected, especially if there is an overheating in the economy,” said Brian Murphy, an adviser at Wakefield, RI.
He adds that rising prices for base metals could “predict higher inflation”, coupled with a sharp rise in commodity prices and even bitcoin.
In the hurry to take advantage of the recovery after the pandemic, exuberant investors can take unnecessary risks. However, the main rule of maintaining a cash fund on a rainy day is more important in this situation than ever before.
“Don’t forget about your six-month emergency fund,” Murphy said. Although he can earn almost nothing in cash, investors can chase higher returns, but he warns that the risk could exceed the rewards of slightly better returns.
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