FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Discipline Is Key To Investment Success (Vanguard)
"Although the asset allocation decision is one of the cornerstones for achieving an objective, it only works if the allocation is adhered to over time and through varying market environments," according to Vanguard. This chart shows two portfolios that start with 60% stock and 40% bonds. "But four years later the 'drifting' portfolio has moved to 75% stocks. That much equity exposure might seem appealing during a bull market, but by late 2007 the portfolio would have faced significantly greater downside risk as the financial crisis began."
Defined Contribution Plans Can Still Work (The AllianceBernstein Blog)
A lot of ink has been spent discussing America's looming retirement crisis. Many argue that U.S. defined contribution (DC) plans can't offset the lack of savings and that these plans should be disbanded altogether. But Richard Davies at AllianceBernstein Blog thinks three key variables drive a defined contribution plan, and tweaks to these can help clients "achieve a comfortable retirement: the asset-allocation mix of the glide path, the savings rate before retirement, the spending rate after retirement, and age at retirement." He shows that increasing equity at 65 to 50%, from 40%, increasing savings to 4.5% and increase it by 0.5% per year until it hits 10%, and pushing the retirement age to 67, from 65 can make participants' money last to or beyond a person's life expectancy.
Firms Want Advisors To Take A More Holistic Approach (Investment News)
While firms are pushing advisers to offer more holistic advice, few are doing so, reports Mason Braswell at Investment News. Holistic planning extends beyond financial advice to trusts, estate planning and other services. "The holistic approach is going to be the hallmark of the financial adviser of the future," Greg Fleming, president of Morgan Stanley Wealth Management said at the Securities Industry and Financial Market's Associations' (SIFMAs) private-client conference.
Buybacks May Be Coming To An End (Business Insider)
"The financing gap for the non-financial corporate sector has remained open since Q4 2008; i.e., capital expenditures have been running below the level of internal cash flow generation," Societe Generale's Aneta Markowska told Business Insider. "Rather than investing in new equipment and structures, businesses have used their cash positions to buy back stock or to grow through acquisitions."
"This process, however, may be coming to an end. The ratio of the market value of equities to the replacement value of tangible assets (or the so-called Tobin Q ratio) has increased significantly in the past year and now stands at its highest levels since 2000. With equity values currently estimated at 25% above replacement value, expanding organically to make a lot more economic sense than expanding through acquisitions or stock buybacks."
How Advisers Can Prepare For An Inevitable Downturn (The Wall Street Journal)
Kimberly Foss, CEO of Empyrion Wealth Management, is preparing for a pullback in stocks and rising inflation. Foss thinks advisers should have a plan in place and get rid of "'hopium': that foolish hope that everything will work out." Foss is telling her clients to keep their bond durations short at three years or less, and also warning against high yield. "That high yield doesn't pay you for the duration and the risk you're taking. When the world goes into crisis--and it's not a matter of if, but when--high-yield bonds are going to be the first to default," she writes in a new WSJ column. As for equity exposure, she recommends "40% equity exposure--in particular blue-chip stocks with strong balance sheets--and 60% fixed income."