FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Two Key Steps To Building A Diversified Portfolio (Servo Wealth Management)
There are two steps investors must take when building a diversified portfolio, writes Eric Nelson of Servo Wealth Management. 1. Know that risk and returns are related 2. Figure out which risks have reaped the greatest rewards and if that is in line with the portfolio’s objective.
“Taking additional risk with stocks by tilting to smaller and more value-oriented companies has been richly rewarded with significantly higher returns. Better yet, small value stocks have provided helpful diversification benefits while not exhibiting vastly greater losses during the worst market periods. The same cannot be said for bonds. ‘Reaching for yield’ by holding the most speculative and highest-yielding junk bonds has not resulted in the same increase in returns. Worse yet, during the most painful market periods, riskier bonds tend to experience precipitous declines and behave more like stocks than fixed income.
“Enlightened investors know that not all investment risks are worth taking. They avoid all but the highest-quality and safest bonds, instead focusing on stocks and smaller and more value-oriented companies in particular for additional expected returns (and risk).”
Five forces are shaping the financial advisory industry, according to Robert Sofia, chief operating office of Platinum Advisor Strategies, an online consulting firm to financial advisors.
1. Consolidation – In the face of falling revenues and declining profit margins, the industry is beginning to consolidate. 2. Generation shift – There’s a generational shift underway from baby boomers to Generation X and Y, and advisors need to be prepared for this. 3. Automation – Many tech-savvy investors, including high net worth clients, will move from traditional advisor to low-cost online platforms. 4. Regulation – The industry is becoming more regulated and there is “an industrywide fiduciary standard is coming.” 5. Compensation – “Advisers and small broker-dealers are being squeezed by volatile markets and are racing each other to the bottom, cutting commissions, which have decreased on an annual basis.”
Sofia thinks advisors need to recognise and adapt to these five trends or risk failure.
UBS Hires Duo From Merrill Lynch That Managed $US275 Million (The Wall Street Journal)
Jason Taraszki and Jay Arbetter, who managed $US275 million in clients assets have joined UBS, from Merrill Lynch’s retail brokerage arm, reports Corrie Driebusch at The Wall Street Journal. Taraszki and Arbetter generated over $US2 million in fees and commissions annually while at Merrill Lynch. The duo that specialises in private portfolio management will join the Texas office.
‘Everyone Is Bullish’ Is Not A Reason To Sell Stocks (Bank of America)
Bank of America’s Savita Subramanian has an S&P 500 2014 price target of 2,000. That implies a price return of about 11%, which is less than in 2013, but “our view is still higher than the consensus view on Wall Street,” Subramanian said. The notion that “everyone is bullish — it’s time to sell” is misguided, said Subramanian. She argued that stocks are fairly if not undervalued by most measurements.
“Markets have settled into what has generally been a sweet spot for equities: low but rising rates, low inflation and a pickup in economic growth. We believe we are on the road to normalcy and that U.S. equity markets should continue to climb higher.”
“Investors are not currently displaying signs of optimism that have historically marked a peak for stocks,” writes Jeff Kleintop of LPL Financial. There are three sentiment indicators to look at when one considers if the stock market is at its peaks. 1. A hot mergers and acquisition markets suggests that the stock market could be overheated. 2. IPOs tend to surge in the run up to market peaks. 3. Individual investors tend to flood into the stock market, though this isn’t considered “a sign of a market peak until it reaches extremes.” These three sentiment indicators are not flashing warning signs just yet, writes Kleintop.
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