Big Market Shift Underway - What Do You Do? Financial Advisors' Daily Digest

by: SA For FAs


Zachary Karabell persuasively describes big market shifts now underway; but even if accurate, should investors actively reposition their portfolios?

Evan Powers: Could a private equity bubble wreak havoc with your portfolio?

Ted Waller argues that retirees now need to plan for inflation’s renewed threat to their income.

Zachary Karabell, head of global strategy for Envestnet, has a piece today called "Rotations, Reversals, Rising Rates: A Time To Reposition."

In keeping with the exciting title, Karabell writes - almost breathlessly, I'd say - about the big market shifts now seemingly underway. The fact that long-dated bonds lost 8% in value within days of the U.S. presidential election is Exhibit 1 in his case for the bigness of it all. As Karabell puts it:

Especially for longer-dated bonds, the moves were not only sudden, but potentially jarring. To lose 8% on a supposedly stable investment will come as a shock to some who had thought of these investments as safe and steady. Nothing in financial markets should be considered truly steady, and the perception that bonds are immune to volatility is surely one of the great distortions of our time."

As one who does not advocate reacting to news but rather putting a plan in place and sticking with it through thick and thin, I do nevertheless acknowledge that it certainly does feel like a big shift is occurring. In other words, I tend to think that Karabell is correctly capturing the new market zeitgeist. The author makes numerous recommendations - like boosting equity allocations and buying sold-off long-term-bonds, and he also counsels thinking "about where the next shift will be" - none of which I can personally endorse. But one of his recommendations does warm my heart:

Positioning for a modest end to the thirty-four-year bond bull market by bringing one's equity allocation back in line would be wise, at the very least."

As we discussed yesterday, rebalancing is a virtuous way to act for those who want to do something. Although annual rebalancing, on a schedule, seems a better way to minimize transaction costs, an occasional opportunistic shopping spree can be a shrewd move. Many investors have seen their bond holdings grow to enormous proportions, relative to their stake in stocks, during the great bond bull market. (The global bond market is substantially bigger than the global stock market, by the way). The key thing is to have an asset allocation that matches your objectives and to make sure you don't let inertia distort your plan over time.

Note to readers: We will not be publishing the Financial Advisors' Daily Digest in the coming week, but look forward to resuming on Monday, Dec. 12.

Meanwhile, here are a few links to cap your week:

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