Rising rates are an opportunity for financial advisors | Financial advisors

You heard the news. Interest rates are rising. When clients of financial advisors hear this, they think of mortgages and certificates of deposit. Advisors’ minds are rapidly drifting towards the mess their bond portfolios are turning into.

At least, that’s where their minds should go.

Because whether you use bond funds, bond SMAs, 60/40 or 40/60 allocations, or other types of balanced investment strategies for your clients, they have one thing in common: they may not be as good as they were for at least a decade.

You can rehash the same “asset allocation” and “diversification” rationales that make different types of bonds part of the club, but that’s not the last 40 years. It’s an environment where rates are not just rising, but from some of the lowest levels in history.

This calculation is a problem, but it doesn’t have to be.

Alternatively, this may be the best time in your career to gather assets. Because we’re in a time where, if you like peanut butter and jelly, you’re going to have to live without peanut butter for a while. Stocks will do what stocks do: go up and down a lot and ultimately outperform bonds. But unless your clients want the potential risk that comes with today’s runaway valuations and volatile political and economic climate, you’ll need more than just a portfolio of “long” stocks.

Luckily, there are several ways to not only fight back, but also gain more assets in the process. If there was ever a time to showcase the uniqueness of your asset management approach, this is it, if you can avoid standing still like many of your competitors. Here are some ideas to consider:

  • To slow down.
  • Accelerate.
  • Diversify as you see fit.
  • An opportunity to stand out.

To slow down

Financial advisers and their clients everywhere are looking for ways to lessen the impact of stock declines like we did earlier this year. They look at gold, bonds, silver, and even cryptocurrency. They pile into stocks of energy, utilities or consumer staples, hoping these sectors will provide a safe haven from the general market decline. Rather than following these beaten paths, how about doing something simpler: invest in things that, by design, should go up when the market goes down.

Many advisors know what inverse ETFs are. But in addition to these, there are many “defensive” ETF gradients or levels. Some combine rising equities with tail risk protection, and others are more directional. Either way, it makes sense to research them and figure out if and where they belong in your wallets.


Markets today no longer reward patience as they once did. That seems easier to do, say 7% to 10% in a month or two investing in one market segment, than doing 30% over 18 months. It wasn’t like this before. But it’s thanks to algorithmic trading that retail investors are flooding the market with activity, and these low interest rates are forcing many to try something different. Tactical investing, as it is called, is as much an art as it is a science. And now is the perfect time to take art classes. You don’t need to learn how to be a swing trader. More and more alternative investment managers are emerging, without resorting to illiquid hedge funds or private equity funds.

Diversify Your Way

How many investment segments do you plan to own, if they are attractively priced? If your answer is three – stocks, bonds and cash – you may be leaving a lot of opportunities on the table. Frankly, you also risk having your clients determine after the fact that you should have developed or accessed someone else’s more in-depth research process. Even though the stock market often moves as if it were a big wave, dragging everything in its path, there are times when the selection of sectors and industries can add a lot of value.

In times of rising rates, accelerating your investment process through tactical management alone will not replace this role of bond stability. You need to combine it with a more diverse set of market areas to exploit at times when they are able to reward you, even temporarily.

For example, it’s not just about owning tech stocks. Within technology are software, fintech, cybersecurity, robotics, semiconductors and other subsectors. This is just one example among hundreds. These include commodities, currencies, and even bonds. Yes, bonds, the same asset class whose bashing is the focus of this article. “Owning bonds” is no longer a productive part of a modern portfolio. But today’s markets allow you to rent just about anything, even interest-rate-sensitive investments. For example, the price of long-term US Treasuries may be in a period of secular decline. But along the way, there will likely be 10% to 20% counter-trend rallies that fit the description of a tactical position, as described above.

An opportunity to stand out

No matter which avenue or path you choose, the key is that you face the problem. To pretend that we are in a normal interest rate environment for investors and financial advisors today is to deny reality. Your clients will thank you for being on the forefront of what could be a multi-year problem – low and rising interest rates.

Hopefully, they will go beyond the accolades and tell their friends and family that their financial advisor is different and truly in tune with today’s complex and challenging markets.

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