FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
The economy has seen a ‘secular’ bull market since 2009, and the recent pause has caused some investors to fear a major pullback. There may be a correction in the market soon, although the long-term trend is still upwards, according to Charles Schwab analysts.
“Geopolitical tensions, some measures of stretched sentiment, weakening market breadth, Fed tightening on the horizon, and midterm election risk” could all be factors in an upcoming pullback.
However, even though there is an anticipated market pullback, investors should not try and time the market. Charles Schwab cites a Peter Lynch quote: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
Schwab conducted a study using S&P data that showed that between 1994-2013, “missing the top ten up days by trying to time the market would have resulted in a reduction of 9.2% annualized return to 5.5%.” In other words, investors lose more money trying to anticipate corrections, than from the corrections themselves.
Real estate and commodities performed best after periods of low inflation over the past 15 years, according to Craig L. Israelsen. An investment of $US10,000 in real estate grew to $US35,030 and in commodities grew to $US32,141, as measured by the Vanguard REIT ETF and PowerShares DB Commodity Tracking ETF, respectively.
Cash was one of the only asset classes that produced a net loss after 15 years. The ending balance was under $US10,000 after inflation. However, this is unsurprising as cash is cushion that protects investors from major market losses, and now a “growth engine.”
“Cash is like a seat belt — vitally important when needed, but annoying the rest of the time. Nevertheless, we wear the seatbelt all the time, and we likewise keep a prudent portion of the portfolio in cash,” Israelsen adds.
There Are Several Ways To Recruit Young Advisors (Investment News)
Advisory firms need to add young advisors to their firms, and there are several ways to attract young talent. Firms can “build relationships with local college professors, use nationwide recruiting services, scan association job boards or grow the talent in-house,” according to Liz Skinner. And the most successful firms “present a clear route to advancement,” which is important for young advisors who are looking to grow their careers.
Another major recruiting tool is offering paid internships that don’t require grunt work, according to Ben Franklin, the managing director of Franklin Wealth Advisors Inc. This “apprenticeship program” helps cultivate talent. That way, students can learn the skills needed to be an advisor.
The recruiting service “Advisors Ahead” created a similar recruiting service for graduates. Financial advisory firms can pay Advisors Ahead to hire young professionals, then Advisors Ahead trains the young graduates and helps them get licenses. Eventually, the advisory firms hire these trained young professionals full-time once they are well-trained.
A Firm Was Ordered To Pay $US3.9 Million After A Messy Brokerage Firm Case (The Wall Street Journal)
Investors accused the CEO and president of the Resource Horizons Group LLC brokerage firm of “negligence in the hiring and supervision of Robert Gist, a former broker for the firm who has been accused by regulators of misusing $US5.4 million of client money,” according to The Wall Street Journal’s Anna Prior.
According to the SEC, Gist took the clients’ money and spent it on himself. Gist then funneled other money into a company, Encap Technologies LLC, in which he had an ownership stake. He’s since been barred from the brokerage industry.
The investors sought $US5.8 million, including $US3.5 million in out of pocket losses even though Gist is no longer at the firm. An arbitration panel awarded them $US3.7 million.
This Year Own Longer-Maturity Bonds And Sell Shorter Maturities (The BlackRock Blog)
“We do love bonds in 2014, but that love is conditional,” writes BlackRock’s Jeffrey Rosenberg. He expects a 50-basis point increase in the 10-year Treasury this year, and therefore suggests that “owning longer-maturity bonds while selling shorter maturities could be a winning combination in the year ahead.”
“Related to our first theme, we think the most vulnerable area of the bond market is the two-to-five year maturity range. Longer-maturity bonds look more attractive than they used to given the rise in rates we saw last year and the Fed should keep rates on the ultra-short end of the curve static. It’s that area in the middle that looks dicey. This means that investors should underweight short-duration strategies as well as bank loans,” Rosenberg writes.
And finally, since interest rates have been climbing and credit spreads have been narrowing, certain credit sectors are “starting to look more vulnerable,” Rosenberg writes. For the time being, BlackRock still likes the high yield sector given that liquidity is high and defaults are low.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.