Economic and market conditions are pushing advisors away
from creating traditional 60/40 portfolios for clients, according to Sandi
Bragar, managing director at Aspiriant, a wealth management firm based in Los
Angeles with $14 billion in assets under management.
Stocks are expensive and bonds are stuck at an extremely
low-interest rate level, which means advisors should be creative and look for
some alternatives, Bragar said in an interview yesterday.
“Equities were expensive going into the pandemic and are
even higher now,” said Bragar, who works with entrepreneurs, corporate
executives and family business owners. “Investors should be very careful right
now” about where they put their money. “The boost that the market should get
with the recovery from the virus and the predicted increase in future profits
are already built into the market.”
Bragar said she is concerned that the traditional 60%
equities and 40% bonds construction will not work over the long term. “It is
getting harder to find bargains and investors need to tread carefully,” she
added. Many people have “too much expensive stuff in the 60%.” Stocks will be
pushed even higher with the passage of a large federal infrastructure bill, she
added.
However, the current situation with expensive stocks will
not last forever, which means that, in addition to looking for better choices
for investments now, investors should keep a portion of their portfolios in
cash or in liquid assets so they can take advantage of the situation when
stocks become cheaper, she advised.
Bragar said she recently rebalanced her clients’ assets to
include one-third fixed income and liquid alternatives; 25% to 35%
high-quality, more defensive global stocks such as Apple, US Bancorp and
Accenture, and globally diversified stocks, with an emphasis on cheaper ones,
such as Johnson & Johnson, Boos Allen Hamilton and Molina Healthcare. After
holding assets steady for several months last year, she also recently trimmed her
clients’ fixed-income positions and allocated some of those funds to emerging
markets, with the focus on value stocks.
To make assets allocated to fixed income more profitable,
Bragar advised turning to liquid alternatives.
“At Aspiriant, we are being more aggressive on stocks that
are cheaper and allocating more to value positions. We also are leaning into
international investments,” she said. “For the part of the portfolio that goes
into global and large cap stocks, we look for companies with little debt.”
Aspiriant updates its capital allocations monthly.
“If capital gains taxes look like they ae going up
significantly, we will have those clients with $1 million or more in investment
assets harvest their gains while the taxes are still low,” Bragar said. “We’re
in a transition period right now” that requires careful monitoring by advisors
and their clients, she said.
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