We’ve certainly experienced a significant amount of change and volatility over the past few months, but most asset classes have delivered good performance for investors. We’ve seen the Dow hit 20,000. The Fed is signaling rising interest rates this year, and those of us focused on floating rate credit were encouraged to see LIBOR break the 1% threshold. Correlations are starting to normalize, too.
Yet many investors feel unsettled. The quick and steep ascent is cause for concern. Many respected experts maintain that valuations are stretched and expect a correction in the near term. Despite the recent market performance, we continue to face lower long-term growth expectations and a low interest rate environment. That requires a different approach to portfolio construction.
I see three ways advisors and investors can position themselves for success in 2017:
- Discover new solutions. When investments are performing well, we tend to ignore other strategies outside our comfort zone. At FS Investments, we believe alternative sources of growth and income can be found in segments of the market that were not traditionally available to most investors, including areas like energy and credit investing.
- Learn. Teach. Repeat. I recently wrote about an alternatives blind spot. This is when investors are undereducated about alternative investing strategies because advisors may not be initiating the conversation. I believe asset managers can play a vital role in closing the knowledge gap with education and communication. Advisors who seek out information and share it with their clients can differentiate themselves and enhance trust and loyalty.
- Keep your eye on the horizon. When it comes to designing portfolios, investors have more options than ever before. It’s important to measure success based on clients’ long-term financial objectives rather than short-term ups and downs. Many financial planners advocate goals-based investing, focusing on how assets perform against the individual’s goals rather than comparing them against the S&P 500. It’s a compelling and more intuitive approach to investing.
We all know investing is for the long-term, but holding your course can be difficult. The asset management industry must deliver investment opportunities built to meet today’s challenges and those that lie ahead. For our part, we endeavor to help advisors and investors design better portfolios. How? We design investment choices built to meet specific investor goals, such as income, and we offer the education to understand where they fit in. I believe financial advisors who educate their clients on strategies outside the traditional 60-40 asset allocation model will achieve better results for their clients and enhance client loyalty.
This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.
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