Advisors are most concerned now about how a potential interest rate hike will affect their clients’ portfolios, according to the Fidelity Advisor Investment Pulse survey released Tuesday.
Twenty-six percent of advisors named rising interest rates as their top concern during the second quarter, up from the third spot in the first quarter, according to the survey of 250 advisors conducted by Fidelity Advisor Solutions.
Portfolio management was second with 25 percent. Market volatility was third at 15 percent, followed by fixed income at 14 percent and client guidance at 11 percent.
In anticipation of the next Federal Open Market Committee meeting in September, many financial advisors are trying to address their clients’ concerns about when rates will rise and by how much, Fidelity says.
“On the one hand, advisors are looking to set client expectations on a potential rate hike and the longevity of the bull market in equities; on the other hand advisors want to help their clients understand the impact of what’s happening in the market on their portfolios,” says Scott E. Couto, president of Fidelity Financial Advisor Solutions.
Fidelity urges planners to take a long view for their clients’ investments. Equities have historically averaged double-digit gains in the year after the Federal Reserve initiates a change, Fidelity says.
The story is similar with fixed-income. While bonds have averaged a slightly negative performance in the months immediately following a rate hike, high-quality bonds have recorded low single-digit gains in the first year after a rate hike, Fidelity says. Over two years after the first hike, the average return increases to the double digits.
“The bottom line,” Fidelity says, is “don’t bail out at the first signs of volatility. Many of the best periods to invest in U.S. equities have been those environments that were the most unnerving, and selling an investment because of a drop in value does nothing more than lock in the loss and prevent investors from profiting from any subsequent gains.”