Lower Rates Drive Optimism? Are You Upside Down With Hope?

Lower Rates Drive Optimism? Are You Upside Down With Hope?

The optimism feels good, but our recommendation is to make sure your house is in order. While the probability of a reduction in interest rates in the U.S. may now be almost a certainty, reaching out on the risk curve (ie duration, credit and or high multiples stocks) is making a bet that the best has yet to come. However, many signs exists that increased risk is being ignored. Thirty years of market experience reminds me that a frothy IPO market, signs of greed overwhelming fear and the narrowing of flows into the US in the face of trade issues may make the  famous Alan Greenspan saying relevant  “irrational exuberance”.    (By the way – if you don’t know who Alan Greenspan was you need a financial advisor quickly! ROBO Advisors will not help you during periods of crisis and cheap access to markets may be nice, but only if you understand the risks you are taking.)

Recommendation: Know your risk and embrace a timetable to manage the exuberance, but certainly have your house in order so into a 20% plus  market decline you don’t have to change your life style . Whether you realize it or not, when investors hold equities that are increasing in value they are making a bet that markets will continue to increase at a certain rate. However, markets don’t traditionally move up in a linear manner, but these past 10 years feels that way. Complacency should not be the answer if your house is not in order.

Bottom line: Financial advisors and clients need to assess the impact of a pullback in the equity market.

  • What would you do if your portfolio was 20% less for 2 years? Maybe an opportunity maybe emotionally concerning?
  • Is now the time to own defensive asset classes, ie gold, hedging ETFs and value?
  • For your defensive portfolio look to “non-traditional” solutions in the ETF market. Short term duration in fixed income beyond the market cap weighted solutions can provide a pick up in yield and if the duration is shorter than 2 years the credit will naturally turn over with the cycle.

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Below are a couple of ideas , but certainly not recommendations. The whole premise of these thoughts are to encourage alternative thinking to current risk taking. First, you need to know what risk you are taking. Of course, this is NOT something I know.

Of course, as a reminder “Hope is not a strategy! 

ETF Transparency – Who Owns What?

ETF Transparency – Who Owns What?

In last week’s ETF Think Tank research note, we structured our information

ETFs and Volatility

ETFs and Volatility

In last week’s ETF Think Tank research note, we compared the top 25 holdings in

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