FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Why Pensions Have Been Loading Up On Alternatives (ThinkAdvisor)
Public sector pension plans in Texas, North Carolina, California, Pennsylvania, and New Jersey have all started loading up on alternatives, writes Paula Aven Gladych in a ThinkAdvisor column. “Better performing state funds generally had more alternative investments,” according to Cliffwater’s 2013 Report on State Pension Performance and Trends the report found. “In fact, the top-performing state pension plan over the last 10 years had the highest allocation to alternatives.”
Vern Sumnicht, CEO at iSectors LLC told ThinkAdvisor that alternatives have found favour with pensions because the offer opportunities that traditional stock and bond investments don’t. But to make this work they have to keep their money in alternatives for 10 years at least.
Advisors Need To Help Their Clients With Their Money Baggage (The Wall Street Journal)
People have “money baggage,” according Karen Ramsey, president of Seattle-based Ramsey & Associates. And advisors need to help clients address this “because it can lead to sabotaging behaviour that can keep a client from successfully saving for their future,” she writes in a new WSJ column. “The most common themes that I’ve seen are that a client may feel they don’t deserve money, there will never be enough, that money is bad, that they have to work hard and will never get ahead, that they can’t depend on anyone else, or that money determines their self-worth.”
Advisors need to trace the roots of this behaviour and once they realise this they can consciously choose another behaviour. Clients should also make a note of their new way of thinking because it will reinforce the behaviour.
Why Investors Shouldn’t Worry About Municipal Bonds (AllianceBernstein Blog)
Detroit’s bankruptcy and Illinois’ pension overhaul has many investors second guessing municipal bonds. but Michael Brooks of AllianceBernstein thinks investors needn’t worry. “Individual investors may feel anxious about Detroit’s fate, but it’s truly an anomaly, even though it’s a big one,” Brooks wrote. The 10-year cumulative default rate for municipalities is just 0.1%, and only 13 filed for bankruptcy last year out of 90,000 units of government in the US.”
“Markets tend to ignore this information, but the fact is that the finances of most cities and states are improving along with the economy — and states are working to repair their problems. For example, more than 40 states have made changes to their pension systems to ease the pressure of large liabilities. We believe that the muni market is safe, and that news about troubled municipalities should be read in this context.”
Many are concerned about a rise in interest rates which Wall Street strategists warn, is coming, in 2014. While this could hurt bonds, stocks seem like a good option in the environment, according to BlackRock. “Most investors fear rising interest rates. But perhaps more than the others, bond investors fear the loss of portfolio value that may occur when interest rates rise. Which begs the question — are there alternatives to bonds that might offer income and behave better in a rising rate environment? …Indeed, global dividend stocks offer a compelling potential of income and outperformance in rising rate environments.”
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