During Times Like This, Advisors Should Call Their Most Anxious Clients

Advisors Should Call Up Their Nervous Clients Today (Advisor Perspectives)

Clients always get nervous around a market "hiccup." In these situations, it's important to first understand where this nervousness stems from. Concerns like Ebola, Ukraine, ISIS, elevated valuations of US stocks, and even the memory of the financial crisis six years ago all make clients feel extra anxious.

Advisors should identify and call up the clients who are the most nervous. Those who were anxious in the past (especially during relatively minor market turndowns) will probably be the ones who are anxious in the present.

"When talking to nervous clients, you need to walk the line between acknowledging the real issues they face while providing context and reassurance," writes Dan Richards. And if you get a client's voicemail, it's important to send a follow-up email detailing information, but also providing reassurance.

"By taking the time this week to reach out to clients likely to be anxious, you will send a positive message and increase the odds that clients will walk away reassured," Richards says.

Bonds Investors Should Mix Active And Passive In The Current Market (BlackRock Blog)

Generating a return in the bond market during the next 2-3 years is going to be "harder than ever before" for two reasons, according to BlackRock analysts. First, there's deleveraging and rising investor demand; and second, rates are still pretty low when compared to historical averages.

Consequently, bond investors "should mix active and passive," according to BlackRock. "Blending index and active exposures allows investors to better manage their market exposures, be selective about those funds and managers where they have high conviction, and customize their portfolio according to their unique needs."

A critical part of bond portfolios is the duration, or the interest-rate sensitivity. The higher the number, the more likely the price of a bond will be affected by changing rates. "As rates rise, BlackRock believes that investors will want to bring their duration down, and those investors who want to do so but still maintain exposure to the broad market could consider a mix of indexed and active bond strategies."

Investors Should Have A 2-4 Year Cushion (Charles Schwab)

Investors are often told to think about "risk tolerance" - or their "comfort level" - when taking on investment risk. However, it is more important to think about "risk capacity," or how much risk investors can afford, according to Charles Schwab's Rob Williams.

"Consider your needs over the short time horizon. If you're nearing retirement, think about how much money you need in the next two to four years. Invest that conservatively. Then invest the rest based on your longer-term time horizon and risk tolerance. In other words, work backwards to build your allocation," writes Williams.

Investors should essentially have a 2-4 year investment cushion. This is critical for those approaching retirement years because for the last 50 years, the average bear market for US stocks has lasted slightly over 1 year, and took the S&P 500 3.5 years on average to recover to prior highs.

A Sharp Rise In US Interest Rates Isn't The Greatest Risk (Vanguard)

"A sharp rise in US interest rates is not the greatest risk in the market today. Rather, it may lie in the segments of the market that investors have gone into seeking to avoid that very risk of higher rates to begin with," argues Vanguard's Joe Davis.

He says that often investors take information released by the Fed "too literally", especially the "dots chart." This leads investors to create "a false sense of certainty and complacency." And because volatility has been low this year (with stocks and bonds producing fairly steady positive returns), investors have gotten extremely complacent. They've started pursuing the riskiest options and higher yields.

The Fed is "likely to spark volatility as the market digests new information" so clients should be reminded to rebalance in order to exhibit risk control.

And, investors should be mindful of duration tilts, Davis writes. "Both the near-term Fed liftoff date and the long-term natural level of interest rates are extremely uncertain. Duration bets must be placed almost perfectly on the yield curve to pay off. Investors should be careful when tilting duration without a carefully thought-out plan."

Decisions In Washington May Lead To Buy Opportunities (Wealth Management.com)

Washington politics can greatly impact clients' portfolios, according to Andy Friedman, the principal of The Washington Update. And specifically, investors should pay attention to "forcing events" - or moments when Congress must act - because those tend to be great opportunities to buy.

The next will come "late spring or early summer next year when markets drop because of concern that the debt ceiling's not going to go up, that's a buying opportunity," Friedman says.

Another hotly debated issue is tax-reform. Again, this probably won't pop up until next year, according to Friedman, but it's important to keep an eye on "harvesting losses, buy and hold strategies, municipal bonds, MLPs, and REITs - all the things that flow through income with low or no taxes."

"Because they're tax inefficient, you could be losing half of the returns now with taxes.