Tuesday , January 26 2021

Interest rate concerns and new stock market leaders are driving these changes in the investment portfolio



At some point in 2021, the pandemic is likely to recede. As the global population destroys Covid-19 less, expectations of economic recovery are rising.

Looking to this future after the pandemic, financial advisors are taking steps to put their clients in a better tomorrow. Portfolio management requires constant review, but planning to re-establish the labor market and shifts in consumer behavior presents unique challenges.

As U.S. stock markets are nearly the highest, hopes of recovery are mixed with fears of overpriced stocks on the precipice. By one measure, stocks have recently been more expensive in terms of earnings than at any time since just before the collapse of the U.S. market in 1929.

“If customers put new money into the market, we’re doing more average dollar costs because of where the market is today,” said Jennifer Weber, a certified financial planner at Lake Success, New York. “It gives customers peace of mind, especially if they care about how high the market is now.”

For long-term investors, shares remain a likely source of profit, even if there is a short-term decline. That’s why consultants are trying to find sweet spots in the foam market.

Weber says valuations after years of rising inventories are more attractive to inventories of value. Thus, her team is gradually reducing customers ’exposure to offers called“ blue chip growth, ”as well-known names in the technology sector, in favor of value stocks. “Risk and volatility on the growth side is reaching a peak,” Weber said.

To navigate fluctuating fluctuations, consultants often seek bonds to stabilize the portfolio. But using bonds to exploit post-pandemic recovery also poses a risk. Jon Henderson, a chartered financial planner from Walnut Creek, California, expresses concern about growing global debt fueled by high government spending.

“This could mean a rude awakening if we saw a turnaround in the last two decades of falling interest rates,” he said. “Many investors have never experienced rising interest rates. People may not be ready for this. «

To mitigate this risk for its clients, Henderson is considering reducing the average duration of fixed-income bonds in portfolios. This can be a challenge for some retirees or retirees who prefer a steady stream of income.

“One way to gradually shorten the duration of the scale portfolio is to suspend rather than replace maturing bonds with new bonds with longer maturities that you would normally buy to continue the scale,” he said. Short-term bonds are usually less sensitive to changes in interest rates than long-term bonds.

The Federal Reserve says it intends to keep the reference interest rate close to zero until the end of 2023. But some advisers warn investors not to assume that low interest rates will continue to apply during this period.

“In actual practice, the Fed may lag behind the curve, play catch-up, and will be forced to raise rates faster than expected, especially if there is overheating in the economy,” said Brian Murphy, a consultant in Wakefield, RI.

He adds that rising prices of base metals may “predict higher inflation,” along with large jumps in commodity prices and even bitcoins.

In a hurry to take advantage of the recovery after the pandemic, lush investors could take undue risks. Nevertheless, in this situation, the cardinal rule is that the money fund is maintained on rainy days, more than ever.

“Don’t forget the six-month emergency fund,” Murphy said. While earning no money with money can chase investors to higher returns, he warns that the risk can exceed the reward of slightly better returns.

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