Best Adviser Interview: Investing Wisdom for Bear Markets


Smart advice about the markets was in high demand this year, and we did our best to get it from leading financial advisors and wealth management authorities. For our Thanksgiving Week Barron’s Advisor Q&A, we’ve rounded up some of the best investment wisdom from recent Q&As and podcasts.

Pros suggested that investors remain focused on stocks, but generally thought there could be more pain before the bear market ends. Their collective wisdom suggests that investors who maintain a long-term view will move forward.

From left: Jim Stack, Nailra Pasha Ali, Fran Kinnary, Solita Marcelli, Joe Duran

Illustration by Kate Copeland

Jim Stack, Stack financial management, Interview for November 1 way ahead podcast.

What do you see as the biggest risk for the markets? The risk today is that I don’t think it’s over yet. You want to put on your seat belt. The pressure on the Fed is very real. They are very long. You run two major risks. There is a universal belief that we cannot have a recession because earnings forecasts are stable. The other expectation is that if things start to derail at all, we will see a looming Fed pivot. After all, that’s what Jerome Powell has done every time since 2018. I think both expectations are inherently wrong today.

In terms of bear market statistics, we could easily still be in the first half of this bear market. If you start this year with a market with extreme valuations, I think you have to consider, especially with the Fed in a corner, that you have to consider the possibility that the bear market will not average.

Another big one is about to happen. And if you go back to the burst of tech bubbles or big bear markets like the financial crisis, it’s not uncommon for the S&P 500 to drop 49%, 50% like during the tech bubble washout, or even as low as 55%. . Like he did during the financial crisis. Am I predicting this now? No. But what we’ve done is we’ve narrowed our allocation down to where we’re below 40% of total assets invested. This is the lowest level since the tech bubble melted. This is my level – I wouldn’t call it comfortable. That’s my level of discomfort with this market today.

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Solita Marcelli, Chief Investment Advisor Americas at UBS Global Wealth ManagementInterviewed for our October 7 Q&A.

What are your market prospects for the rest of the year? What I can say with the most confidence is that we should expect the same high volatility we’ve seen for months. The broader market dynamics have not changed: as long as inflation is high and the labor market is tight, the Fed will continue to raise rates and try to slow growth and lower inflation. This creates a very difficult environment for risky assets, and we are unlikely to see a sustained rally in equities until inflation falls decisively and the Fed starts to pivot. .

I think the Fed would probably want to see at least three straight months of slow inflation and a cooling labor market before even considering a pause. I consider it unlikely in the coming months. That said, we’re already about 15% off the mid-August high and investor sentiment is very pessimistic. So I wouldn’t rule out a momentary bump being possible. But I don’t think investors should confuse this with being out of the woods already.

Fran Kinery, head of Vanguard Investment Advisory Research Center, Interviewed for our November 11 Q&A.

How should advisors allocate assets for someone who is 15 or 20 years away from retirement? The most important things when building a portfolio are the client’s goals, objectives, risk preferences and time frame. The contribution of the investor you mentioned is for 20 years. This means that they supplement their portfolio until they retire. But they can have, say, a total horizon of 40 years of life expectancy. So we’re going to have those types of investors very aggressive; They would probably be between 60% and 80% risky assets, which would be equities.

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Our research shows that the longer you hold riskier assets, the more likely they are to deliver real, inflation-adjusted returns. You start seeing opportunities in the 90th percentile at 10 years, and they jump to almost 100% at 20 years. The market is a noisy machine; This distracts the clients from their long-term goals and objectives. The best advisors we see try to cut out the noise and get back to what they’re trying to achieve for clients.

Nailraye Pasha Ali, senior financial advisor, Wells Fargo Interviewed for our July 15 Q&A.

How do you create this ugly market for customers? Many of them have been with me for a long time, and they were before. They just want to know, ‘Hey, are you okay? Should I lower my income or change something else?” For the most part, everyone is on track. But I’m also preparing them for the possibility of us staying here a little longer. It won’t be as fast as it was two years ago, and the next six months may not look so good.

I also think it’s important to find out what the holdings of the customers are. I’m trying to unravel some of the mystery. For example, I say, “Hey, what did you spend your money on today?” Where did you go?” Nine times out of 10, some of the companies they talk about are in their portfolios. Then I’ll talk about the companies they’re into, the dividends they pay, etc.

I love dividend paying stocks. I love that they pay you to wait. Dividends can help you weather the storm. And if you don’t need those dividends, reinvesting during a correction becomes quite powerful because you buy quality companies at low valuations.

Joe Duran, Chief Financial Officer, Goldman Sachs For the Nov. 15 podcast.

With so much uncertainty in the markets, how can advisors plan for the unexpected? The reality is that we have no control over what interest rates do. And no matter how smart we are, we really don’t know what the market is going to do on any given day or any given year. We can use some guesswork to make assumptions about what might happen, but the reality is we don’t know, and we certainly don’t know what people’s personal lives are going to be like.

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The reality is that a financial plan fulfills two very important roles. First, it gives you a good idea of ​​the things you can really control. And it’s a very limited set of options: you can control how much you save, how much you spend, the timing of important events like when you buy a house, whether you retire, things like that. You also have no control over the return, but you can choose how much risk you will take. And ultimately it tells you how much of a safety net you have or how much legacy you want to leave behind.

When you go through a period like we just went through in the markets, the tendency can be to go full cash and reduce the risk levers to zero. But that is related to a range of results that may be sub-optimal results. If someone is already retired and reduces their spending by 10% in four years, the effect is similar to recovering from a 20% decline. And if you’re not yet retired, literally an extra 18 months of work can offset that 20% drop. Financial planning gives you a degree of control over the things you can control, but it also gives you some insight into how best to use those levers to get the optimal outcome for you.

The question and answers have been edited for length and clarity.

Write to Amey Stone [email protected]




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