How do you face up to the challenges?

Our research into the markets, investors, and portfolios has uncovered seven unique strategies that if properly implemented could help to better position financial professionals to take on this new era with greater confidence. Some require a different look at market forces to gain a deeper understanding of the risks they imply for investors. Others require introspection and close consideration about the business and the value created for clients.

  1. Prepare to manage market and emotional volatility: After being nearly dormant for five years, economic and geopolitical factors suggest a sea change – clients and portfolios may need to be readied for a more wild ride.
  2. Old strategies may not work in a new world: If volatility is up, so is dispersion, which means risk management may become an even more critical part of the investment process.
  3. Reset asset class expectations: Expensive stocks and low-yielding bonds often make portfolio construction a challenge. Opening the allocation toolbox could help add much-needed diversification potential.
  4. Don’t confuse low cost with good value: The beta trade can’t last forever, but picking alpha plays may require additional homework in manager selection.
  5. To do what’s right for the client you have to know the client: Markets like this will test relationships. There’s been little volatility for seven years, and it’s critical to understand how clients might react.
  6. Invest in what clients truly value: Clients may want more than just returns from their investments. Aligning investments to meet clients’ personal values may become a critical point of differentiation in an advisor’s practice.
  7. The objective is getting to the goals: Goals-based investing was created to help in times like these. Successful implementation often starts with greater clarity on what clients want to achieve.
The year ahead looks to be full of uncertainty and unknowns. But the one thing we know for sure is that many investors define risk as loss of capital. Navigating the realities of 2017 with confidence will require a more complete game plan for managing investments and managing clients.

More information on how advisors and their clients can ready themselves for both market volatility and emotional volatility is available here. Stay up to date on recent market trends and investor sentiment at our Latest Insights page.

Beta - Measures the volatility of a security or a portfolio in comparison to the market as a whole.

Alpha - A measure of the difference between a portfolio's actual returns and its expected performance, given its level of systematic market risk. A positive alpha indicates outperformance and negative alpha indicates underperformance relative to the portfolio's level of systematic risk.

Diversification does not guarantee a profit or protect against a loss.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.


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