Planning for a Trump slump
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Rising US interest rates and uncertainty stemming from Donald Trump’s presidency are causing American investors to consider shifting from equities to bonds — a move financial advisers are cautioning against.

Instead, advisers are encouraging clients to focus on long-term investing and on making minimal changes to their allocations. Overall, the message advisers have for clients is to stay calm.

This month the US Federal Reserve raised its benchmark interest rate for just the third time in a decade. The Fed has indicated it is poised to raise rates twice more this year. That, coupled with fears that the stock market’s rise since Mr Trump’s election could reverse, has investors wondering where to shift their assets.

“I really try to have clients take a disciplined approach to their investing over the long term,” says Ward Mayer, managing director at Metropolitan Wealth Management of Raymond James. “I put it in perspective for them. If the Fed is going to raise interest rates, what they’re trying to do is tell us that the economy is doing better — if we are experiencing more inflation, the economy is stronger.”

Despite their misgivings over the stock market, savers appear to have unrealistic expectations of investment returns from both debt and equity. A survey by BlackRock, the asset manager, found that two-thirds of retirement savers anticipate stock and bond returns over the next 10 years to be similar to what they have experienced in the past, with 17 per cent expecting higher returns. Yet compared to a separate survey of 35 US investment managers, savers expect returns to be twice as high as those anticipated by investment professionals.

Moving assets from stocks to bonds is not necessarily a good strategy, says Ghislain Gouraige, a wealth manager at UBS. In meetings with clients, Mr Gouraige says he asks investors to identify the past few market bubbles, an exercise that helps them understand volatility and the need for diversification. After those conversations, clients tend to understand that it can be a challenge to find returns in fixed income over longer periods that rival those from equities, Mr Gouraige says.

He adds that despite some hesitation investors may have about the stock market, there can be opportunities for strong returns in sectors such as healthcare and financial services.

Mr Gouraige says he encourages clients to reduce their overall exposure to stocks and bonds, and instead to diversify their portfolios with alternatives. He advises they consider investments such as private equity, real estate and other non-traditional asset classes that have a low correlation to the stock market.

Chris Cooke, partner at Cooke Financial Group, an adviser, says his clients have reduced their allocations to bonds over the past half decade and he is encouraging them to keep allocations low for the time being.

Within his clients’ fixed income allocations, Mr Mayer has been shifting investments from debt funds into individual bonds with different maturity dates. This strategy, known as bond laddering, aims to reduce risk in the portfolio and provide a diversified stream of income.

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