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CIP Quips

Risky Business

What’s in the News:

On June 30th the S&P 500 posted its best 6 month return since 2013 and according to Strategas Research Partners this year’s run has just begun. “Since 1950, when the index has risen by more than 8% in the first six months of the year, it has increased by an additional 7.2% through year-end, on average”.

With equity markets at all-time highs, Envestnet recently looked at clients’ risk profiles to gauge investor confidence and found that clients’ risk profiles are getting less risk averse, with less of a focus on preservation.  Envestnet found that in just the first quarter of 2017, the three most aggressive asset allocation types (of seven portfolio categories) saw allocation increase, almost doubling from last year, while the four most conservative allocations experienced net outflows.  

Allocation of Net Flows into Fund Strategist Portfolios

Source: Envestnet

What are we thinking?

Equity benchmark highs have clearly provided a boost to consumer confidence.  That combined with the potential for more rate increases, the unwinding of the Federal Reserves’ balance sheet, continued low interest rates, and the potential flattening of the yield curve, can make the diversification into fixed income unattractive. But, how long can the market euphoria last? The dot-com bull market run saw record returns but ended in an unforgiving bust, and a similar situation occurred with the bull market prior to the 2008 financial crisis… 

It is important to remain focused on an asset allocation that works for your time horizon and risk tolerability. A more balanced approach can help reduce overall portfolio volatility and the effects of bear markets, while producing more consistent results. We believe there is value in diversifying with fixed income. 

Additional Source: Business Insider



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