Some clients demanded to be in large-cap growth, he said, and wanted to eliminate real estate and commodities. “They wanted to get rid of everything that was going to help them out.”
Gibson also told advisors they might want to weight portfolios in favor of U.S. stocks, since clients benchmark returns to domestic equities.
If stocks are up 29 percent as happened last year, but clients’ diversified portfolios return just 8 percent, they won’t be happy. In contrast, if U.S. stocks are down and other asset classes combine to produce that same 8 percent return, clients will have no problem, he said.
“That frame-of-reference risk is the biggest behavioral risk for anyone following a model portfolio” of different asset classes, Gibson said. “The biggest market inefficiency is in the client.”