I was fortunate to share the stage with Mark Wiedman, Head of Global Client Business at BlackRock. In our session, “Keep Climbing Higher: Elevating Your Practice in the Face of Market Headwinds,” we used our time to really dive into what those headwinds look like, how they could change in the short-term, and what investors need to keep in mind as we face what’s coming. There are so many different factors at play.
Is a recession coming? Are we at bottom yet?
As I opened my portion of the presentation, I explained that generally speaking, a recession (size and scope unknown) would likely happen because the Fed is more concerned about addressing inflation than it is afraid of pushing us into a recession. While that is never fun to say out loud, I consider it to be a reasonable assessment of the current economic environment.
It is critical to note that this landscape demands an advisor’s guidance. Investment holding periods have been dropping very dramatically over the last few decades. Where it used to be considered normal and prudent to invest with the intent of holding for 10+ years, today so many “investors” are acting more like “traders” and holding periods have dropped to six months or less in some cases.
Advisors are in an important position to keep investors disciplined. As you know, waiting out this recessionary period will be key as we move through the near term, but with minute-by-minute updates on the financial markets at their fingertips, investors need you to be their checks and balances. If your clients need to hold their positions longer, they may also need to think differently about where they are investing. They’ll need your guidance on portfolio construction and timelines.
Of course, we are all wondering, have we hit bottom? While short-term prognosticating is notoriously fraught, I would argue that it makes sense to plan with an eye toward the potential for more volatility. In our discussion, Mark and I looked at a mix of signals that give us an indication of where we might be in the cycle and what type of market we might be in. I don’t think any of us can be sure of the bottom at this time. Experienced, knowledgeable advisors provide important perspective to their clients amidst so many unknowns. Given what we know and what we don’t know, there are still ways that an advisor may be able to help their clients pause, assess, and position themselves for the future – whatever it may hold.
One action to consider taking today—Help your clients to set up credit now, so that they can stay liquid while still staying invested, no matter what the weather. Explore some options at https://www.envestnet.com/exchange-partners.
Asset classes to watch
Mark did a great job of reminding us that, after 15 years of “free money,” we’ve left that chapter and we’re entering another. Unless you were invested around the year 1980, this may feel like a brand-new world to you. What does that mean? Mark highlighted two challenges we’re watching and two opportunities worth keeping an eye on.
Could Struggle:
- Commercial Real Estate — This industry really liked ultra-low interest rates. This is one area that is going to feel some pain in the near future.
- Regional Banks — Some regional banks are prepared for what is coming and some are not. Those that aren’t ready are not likely to survive.
Could Thrive
- Private Credit — The private credit industry is uniquely positioned to benefit in the near future and may be worth keeping an eye on for opportunities.
- Infrastructure — Mark expects very large capital investments in infrastructure on a global scale. These investments will be not only to fix failing infrastructure, but also to make the shift to a carbon-free economy. Most of us haven’t lived in a world with truly large-scale infrastructure projects and the opportunities those bring.
Mark also spent time walking us through the large geopolitical movements he sees and how those developments could affect investors, namely through issues like de-globalization and the role of the dollar on global payments in years to come.
Portfolio construction takes center stage
All of the elements we discussed in our keynote, from the market to what we think the Fed will do next to geopolitical tensions, shine a spotlight on portfolio construction. Portfolios and asset allocations have replaced products as a top priority in the financial services world. In an environment where cash and bonds are viable again, a myriad of active and passive (and hybrid) strategies are available. Clients are relying on their wealth managers to help them build a portfolio that is right for their specific situation and well positioned to thrive. For many investors, now may be a great time for a reset—a time to sit down and think critically about the next decade. Models, customization, whole portfolio thinking, and asset classes beyond equity can help advisors to bring more value to those discussions. We are back to thinking about wealth 101 and the wisdom in holding investments over time.
Like I said before, today both investors and advisors have enormous access to financial technology that didn’t previously exist. The key to success is bridging the client’s technological experience with your financial guidance and expertise in order to help them live an Intelligent Financial Life™.
Visit https://www.envestnet.com/event/elevate/ and put our 2024 event on your calendar. I’m so curious to see how our economy and the markets will evolve between now and then!
