With interest rates in the U.S. expected to rise as soon as next month, some anxious investors are making sudden changes in their portfolios among other self-defeating mistakes, according to a poll of financial advisors released Tuesday by Natixis Global Asset Management.
If that weren't enough to worry about, so-called robo-advisors are forcing advisors to prove their value to clients.
Natixis conducted the online poll of 300 U.S. financial advisors in June.
Fifty-eight percent of advisors in the survey expected bonds to become more volatile as rates rose, 48% thought higher rates would hurt stock values and 41% anticipated reduced consumer spending.
Investor anxiety is running high, and some investors might find it difficult to resist changing their investment portfolios, John Hailer, chief executive of Natixis in the Americas and Asia, said in a statement. "But we've often found that unguided, emotional investment decisions don't work out as intended. Investors would do well, instead, to work toward long-term goals."
If the financial markets should falter, investors may be prone to making even more errors, according to advisors surveyed.
Indeed, they have identified seven key mistakes by investors:
- Making emotional investment decisions
- Focusing on short-term market noise and changes
- Failing to have a financial plan
- Not setting clear financial goals
- Not staying on course
- Keeping too much in cash
- Investing too little in stocks
Demand for Innovative Strategies
Given changing markets, advisors said they were likely to use more innovative investment strategies to help investors avoid mistakes in more volatile markets ahead.
Seventy-seven percent agreed that traditional portfolio allocation — 60% stocks and 40% bonds — though still valuable for a portfolio was not the best way to pursue return and manage investment risk.
Alternative assets, they felt, were important because they could provide characteristics not found in traditional asset classes. Eighty-one percent of advisors said they used exposure to commodities, currencies, real estate and other alternatives in the portfolios of at least some clients.
Most advisors believed active and passive investments should be a part of their clients' portfolios. On average, they invested 35% of clients' money in passive assets, such as index funds or exchange-traded funds.
According to 62% of advisors who used passive investments, these are better for low fees and for providing easy access to efficient asset classes.
