Advisors should focus less on trying to predict potential interest rate increases and more on positioning their clients to weather any outcome, says Jason Thomas, CEO and chief investment officer of Savos Investments.
Having said that, Thomas says he thinks the Federal Reserve will raise interest rates by small increments three times this year and will telegraph its intentions well before announcing each decision.
Savos Investments is a division of AssetMark Inc., a financial services firm based in Concord, Calif., with a total of $28.5 billion in assets.
“This is an unusual market, so advisors should cut themselves some slack and stop tying themselves in knots trying to predict it,” Thomas says.
This is the seventh year of a bull market and normally one would expect to see high valuations of stocks, which is true now, but one would also expect high interest rates, which is not true now, Thomas says.
Currently, both stocks and corporate bonds are facing headwinds and causing concern among advisors about the future, Thomas says, but the unusual market is also creating opportunities.
“High-yield municipal bonds are an opportunity right now. They are not highly correlated to either equity or corporate bonds,” he says.
“Advisors need to give their advice holistically," he adds. "For instance, if clients are concerned about low interest rates, advisors should point out the corresponding low interest on mortgage rates the clients are probably being charged right now. Have them take that extra money and take a little more risk with it.”
“As an advisor, you are doing the clients a real service if you show them where they are doing well despite the volatile market,” Thomas says.