Investors should avoid sudden changes in their portfolios right now while the market is in flux and potential interest rate increases are on the horizon, say financial advisors surveyed by Natixis Global Asset Management.
Based on a 2015 survey of 300 financial advisors released Tuesday, Natixis says advisors feel investors may be tempted to make emotional financial decisions and pay too much attention to the short-term market noise, both of which would be a mistake.
The survey respondents also said investors should not invest too much in stocks right now because higher interest rates would hurt equity values. But at the same time, 58 percent of those surveyed said bonds would also become more volatile as rates rise.
Forty-one percent of the advisors believe consumer spending will suffer as a result too.
“We’ve been expecting higher rates for a long time and, for some investors, anxiety is high,” says John Hailer, chief executive officer for Natixis Global Asset Management in the Americas and Asia. “They might find it difficult to resist changing their investment portfolios. We’ve often found that unguided, emotional investment decisions don’t work out as intended.”
Instead of sticking to a traditional 60-40 split of stocks and bonds, investors should consider alternative assets, such as exposure to commodities, currencies and real estate, according to 77 percent of the advisors. The survey found that 81 percent use alternatives in the portfolios of at least some clients.
Advisors believe both active and passive investments should be a part of their clients’ portfolios. On average, advisors invest 35 percent of their clients’ money in passive assets, such as index funds or exchange-traded funds.
At the same time, actively managed assets get higher marks than passive investments for their ability to respond to short-term market moves and for providing higher risk-adjusted returns.
Members of Generation Y present the greatest chance for growth in the next three years, said the surveyed advisors, who expect 18 percent of clients to be under 35 by 2018, up from only 12 percent today. A majority of advisors acknowledge that working with younger clients will require them to adopt a more flexible fee arrangement.
But 45 percent of advisors said they will be challenged to capture assets from those on the other end of the spectrum—older clients shifting from saving to spending in retirement.