We need to reset the theorems we learned years ago: The markets are different, and the strategies need to adapt.
Consumer behavior has dramatically changed in response to the Pandemic. Consumers expect digital solutions, service, and technology that supports this strategy of an increasingly online solution. Other trends include increasing marketing spend, doubling data capture efforts, and investment in online technology have resulted in response to evolving needs and consumer behavior.
The mutual fund marketing machine has created a strategy of developing ‘hooks’ to attract assets, these include:
- The antiquated 60/40 split: This formula which some still see as a cornerstone of financial planning. When interest rates were higher and falling a portfolio could trust that it’s Fixed Income allocation would have positive returns. Today investors need to be more creative to achieve the returns and goals they are looking both in their asset allocation and overall strategy. When Fixed Income can be a drag on overall performance investors need to turn to surrogates to substitute these returns.
- 401Ks Value: Promising employees that self-directed 401Ks will be more valuable by allowing the average individual to make their asset allocation and fund selections. During an extended Bull market employees faired well with their plans yet as markets normalize further education will be key. Adoption of Life Cycle Funds should take more of a leading role as individuals struggle to achieve the returns they have become accustomed to in the last two decades.
- Equity Strategy: The ongoing story that stocks are the primary driver of wealth with the necessary liquidity. This helped drive the household names in asset management to the massive consolidation today separating the behemoths from the boutiques. Today there is a large crevasse between firms that offer one-size fits all and those who really customize their solutions client by client. Given the volatility of today’s markets, professional oversight is the key to ultimate success.
Within the financial markets, perhaps the most dramatic change is how emotional and volatile publicly traded assets have become. The enhancements in technology, speed of execution and integration of trading algorithms has made public securities much more difficult to balance between trading and investing. This has only escalated as markets have become more global.
Liquidity, by definition, comes at a cost. While the volatility of the market may encourage some to increase their liquidity parameters, long-term consistent performance can be lost when constantly planning for the worst.
At Clearbrook, we work very hard to understand the risk profile of each of our clients and balance that with what is appropriate for both their goals as well as tolerance for loss. This profile, or Investment Policy Statement, is reviewed annually to make sure the goals and expectations of each client equate with the structure of the overall portfolio.