More from Sheaff Brock about Angela’s Angst

Sheaff Brock Investment Advisors - recommendations for financial planning and investment strategy for distribution phase of retirement

More from Sheaff Brock about Angela’s Angst

Wealth manager Jerry Miccolis, CFP®, CFA, writing in the Journal of Financial Planning, created a character named Angela who, as she and her husband enter the “distribution phase” of their financial lives, is concerned about her financial future. What advice might YOU give to Angela? Miccolis asks other investment advisers. In an interview with our Sheaff Brock editor, wealth manager and financial planner Paul Coan responds.

In Miccolis’ construct Angela is particularly uneasy about four specific pieces of investment advice she has been receiving:

Advice area #1: Commit dollars to esoteric “alternative investments.” (This category might include real estate, hedge funds, master limited partnerhips in pipelines, oil and gas production, or hard currency.)

Coan’s comment: An investor Angela’s age might be advised to keep alternatives to 5% or less of the overall portfolio. Reasons for including alternatives at all might include:

  • enhancing income production
  • hedging traditional investments
  • gaining possible tax advantage through claiming depreciation

Advice area #2: Reach for higher yield through fixed income investments.

Coan’s comment: In an extremely low rate environment, chasing yield will mean going down on the quality spectrum of bonds. As rates begin to rise, principal is more likely to decrease rapidly in lower-quality bonds.

Advice area #3: Emphasize overseas equities. (One reason for Angela’s reluctance to follow this advice is her concern about the waning of China’s role in the global economy.)

Coan’s comment: Angela might be well-advised to include at least some international, and even some emerging, market equities in her portfolio. As China’s role decreases, other emerging economies (India and Indonesia, among others) might step in to fill the void.

Advice area #4: “80/20 is the new 60/40.” Shift the equity/fixed income allocation in the portfolio to include more stocks.

Coan’s comment: Were Angela and her husband younger, perhaps that advice might be appropriate, but, as 66-year olds, these retirees must consider downside protection.

It’s not only the fictional “Angela” who is feeling a degree of investor angst. Year end—any year end—tends to be a time marked by some degree of investor angst, and perhaps in this time of a transitioning political administration, that angst might be even more pronounced. For that very reason, the most effective strategy involves a comprehensive financial plan that clients work on with their financial advisors year round.

Hear more of the advice Coan gave during Sheaff Brock’s December Knowledge Builder webinar on Financial Planning Basics. Find the replay online here.

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