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Talkin' Shop: Motivation to Change

Stocks and bonds are two elements of a portfolio that have performed in complementary ways since the early 1980s. However, since interest rates decreased to near zero in 2020, the risk of bonds failing as a safety net for the portfolio has substantially increased. Furthermore, an increase in interest rates may not only have an adverse impact on bond holdings, but may also become the spark that ignites a simultaneous decline in equity prices.

Transcript

Eric: The motivations that I see from advisors, that I’ve seen from advisors over the past three years are just more relevant. If they’ve felt like stocks were certainly not undervalued two years ago and one year ago, well they’re probably not feeling that stocks are undervalued today.

The bond problem hasn’t meaningfully changed at all.

If anything, I would say that if there was demand for an alternative that you can actually get behind, an acceptable alternative that doesn’t turn your practice upside down or drive your clients crazy. If there was demand for that two years ago there is probably a lot more demand for it today. I think.

Now people sometimes need their feet held to the fire before they make a change. They need the stock market to go down. But I think there is also a large group of people that are somewhat proactive. They are looking at it and they’re saying: you know I just don’t want to have sixty, or seventy, or fifty percent of my money in equities or my clients’ money in equities anymore. And it doesn’t necessarily have to be because they think the equity market is going to go down. It could be that their clients are just four years older than they were four years ago and it doesn’t make sense anymore. Equity beta, even though it is free and is tax efficient it is not low risk, and everyone knows this.

So, I would say that if you were looking for meaningful diversification away from stocks and bonds three years ago that you should be looking even harder today.

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