FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Why Investors Should Consider Short-Term Bonds (BlackRock Blog)
“In stock investing, a short-term trade can make you money,” writes Jessie Szymanski. “In the bond world, shorter-term bonds can mean less risk. And these days, with interest rates likely to rise, reducing risk in your bond portfolio may be more important than ever.”
“Short term bonds can fare better in higher interest rate environments. Why? In general, when interest rates go up across the curve, bond prices go down. But here’s the key — short term bond prices go down less. …Regardless if you’re starting out with long-term bonds, or no bonds at all, toe dipping into short-term bonds can help you stay invested in the bond market — no matter where interest rates go.”
Longevity Poses A Risk To Retirement Systems (Bank of America)
Retirement systems around the world are expected to face a significant burden in the next 50 years, according to Bank of America’s Sarbjit Nahal and Beijia Ma. This is because the number of people over the age of 60 is expected to double from 841 million in 2013, to over 2 billion by 2050. The two main risks posed by longevity are 1. “Threats to fiscal sustainability as a result of large longevity exposures of governments, which, if realised, could push up debt-to-GDP ratios by more than 50 percentage points in some countries.” 2. “Possible threats to the solvency of private financial and corporate institutions exposed to longevity risk.”
“Governments, corporates, insurers and individuals are exposed to longevity risk due to increasing life expectancy trends, resulting in higher-than-anticipated pay- out levels on retirement products.”
Advisors Are Increasingly Concerned About Cyber Security (The Wall Street Journal)
Advisors are paying more attention to cyber risk, reports Matthias Rieker at The Wall Street Journal. Bill French, a cybersecurity expert for Fidelity says that advisors should address this issue right away. Policies vary and not all cover the firms losses in their entirety, but they will cover the costs of hiring experts, damages the firm owes to clients, fines and the like.
We are currently witnessing the ‘Great Transfer’ of wealth from the Greatest Generation to the baby boomers, according to Bank of America’s Sarbjit Nahal and Beijia Ma. The great transfer will see a handover of about $US12 trillion from those born in 1920s and 30s to the boomers. But the boomers are expected to transfer some $US30 trillion in assets to their heirs over the next 30-40 years in just the U.S., they write. This presents a huge opportunity for advisors, since only 4 in 10 retirees in the U.S. currently use financial advisors.
William F. Galvin, Secretary of the Commonwealth of Massachusetts, has asked Congress and the Securities and Exchange Commission (SEC) to make it mandatory for companies to disclose changes in 401(k) contributions to workers, reports Margaret Collins at Bloomberg. U.S. companies have been accused of trying to lower the amount of their contributions and delaying the timing. “Employees should be told the potential risks involved in a significant change, such as a shift to a year-end annual employer match,” Galvin said in a statement cited by Collins. “They should be told before the change occurs.”
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