Interest rate concerns and emerging equity market leaders are driving these portfolio shifts

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At some point in 2021, the pandemic is likely to recede. With the world’s population less devastated by Covid-19, expectations for an economic recovery are rising. Analyzing this post-pandemic future, financial advisers are taking steps to position their clients for a better tomorrow. Portfolio management requires constant review, but planning for the return of the job market and changes in consumer behavior present unique challenges.

With US equity markets nearing all-time highs, hopes for a recovery are mixed with fears that overvalued stocks are on the brink. By one measure, stocks were recently more expensive relative to earnings than at any time since before the 1929 US market crash. “If customers are pouring new money into the market, we are averaging more costs in dollars due to the current market situation, “said Jennifer Weber, certified financial planner in Lake Success, New York. “It gives customers peace of mind, especially if they are concerned about how high the market is right now.” For long-term investors, stocks remain a likely source of profit even if there are short-term declines. So the advisers are trying to find good points in a sparkling market. Weber says valuations are more attractive to value stocks after years of stock growth. So her team is gradually reducing clients’ exposure to what she calls “top-of-the-line growth” offerings, like household names in the tech industry, in favor of value stocks. “Risk and volatility on the growth side are peaking,” Weber said. To navigate volatile swings, advisers often look to bonds to stabilize a portfolio. But using bonds to capitalize on the post-pandemic recovery also carries risks. Jon Henderson, a certified financial planner in Walnut Creek, California, expresses concern about rising levels of global debt driven by massive government spending. “This could provide a rude awakening if we see a setback from the last two decades of falling interest rates,” he said. “Many investors have never experienced a rising interest rate environment. People may not be prepared for that. ”To mitigate this risk for its clients, Henderson is considering reducing the average duration of fixed-income bonds in portfolios. This may present a challenge for some retirees or early retirees who prioritize a steady stream of income. “One way to gradually shorten the duration of a tiered portfolio is to pause and not replace maturing bonds with new bonds with longer maturities that would normally be bought to continue the ladder,” he said. Short-duration bonds tend to be less sensitive to changes in interest rates than long-duration bonds. The Federal Reserve says it intends to keep its benchmark interest rate near zero until the end of 2023. But some advisers warn investors not to assume that rates will remain low during that period. “In practice, the Fed can fall behind the curve, get a day and being forced to raise rates faster than anticipated, especially if the economy is overheating, “said Brian Murphy, a consultant in Wakefield, Rhode Island. Base metal prices “could herald higher inflation,” along with huge spikes in commodity prices and even bitcoin. In the rush to profit from the post-pandemic recovery, exuberant investors could take undue risks. However, the cardinal rule of maintaining a hard time cash pool is more important than ever in this situation. “Don’t forget about your six-month emergency fund,” Murphy said. While earning next to nothing in cash may lead investors to seek higher returns, he cautions that the risk may outweigh the reward of slightly better returns. More: America’s Number One Job Paying $ 100,000 A Year, And It’s Not In Silicon Valley Plus: Mark Cuban Says Recent Crypto Trading Is ‘Exactly Like The Internet Stock Bubble’