Economic and market conditions are pushing advisors away from creating traditional 60/40 portfolios for clients, according to Sandi Bragar, managing director at Aspiriant, a wealth management firm based in Los Angeles with $14 billion in assets under management.
Stocks are expensive and bonds are stuck at an extremely low-interest rate level, which means advisors should be creative and look for some alternatives, Bragar said in an interview yesterday.
“Equities were expensive going into the pandemic and are even higher now,” said Bragar, who works with entrepreneurs, corporate executives and family business owners. “Investors should be very careful right now” about where they put their money. “The boost that the market should get with the recovery from the virus and the predicted increase in future profits are already built into the market.”
Bragar said she is concerned that the traditional 60% equities and 40% bonds construction will not work over the long term. “It is getting harder to find bargains and investors need to tread carefully,” she added. Many people have “too much expensive stuff in the 60%.” Stocks will be pushed even higher with the passage of a large federal infrastructure bill, she added.
However, the current situation with expensive stocks will not last forever, which means that, in addition to looking for better choices for investments now, investors should keep a portion of their portfolios in cash or in liquid assets so they can take advantage of the situation when stocks become cheaper, she advised.
Bragar said she recently rebalanced her clients’ assets to include one-third fixed income and liquid alternatives; 25% to 35% high-quality, more defensive global stocks such as Apple, US Bancorp and Accenture, and globally diversified stocks, with an emphasis on cheaper ones, such as Johnson & Johnson, Boos Allen Hamilton and Molina Healthcare. After holding assets steady for several months last year, she also recently trimmed her clients’ fixed-income positions and allocated some of those funds to emerging markets, with the focus on value stocks.
To make assets allocated to fixed income more profitable, Bragar advised turning to liquid alternatives.
“At Aspiriant, we are being more aggressive on stocks that are cheaper and allocating more to value positions. We also are leaning into international investments,” she said. “For the part of the portfolio that goes into global and large cap stocks, we look for companies with little debt.”
Aspiriant updates its capital allocations monthly.
“If capital gains taxes look like they ae going up significantly, we will have those clients with $1 million or more in investment assets harvest their gains while the taxes are still low,” Bragar said. “We’re in a transition period right now” that requires careful monitoring by advisors and their clients, she said.