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CNBC
02-07-2025
- Business
- CNBC
With stocks at record highs highs, financial advisors warn not to chase the market. Do this instead
With the stock market near record highs, investors may be itching to go all in — but the last thing they should be is reactionary, according to financial advisors. Stocks moved higher on Wednesday, with the S & P 500 hitting a new intra-day high. On Monday, both the S & P 500 and Nasdaq Composite closed at record levels. Despite the volatility that hit the market this year, the three major averages all ended the second quarter on Monday with solid gains. Growth stocks have outperformed value stocks so far this year, with the iShares S & P 500 Growth ETF returning 7.57% and the iShares S & P 500 Value ETF ahead 4.21%. Those that try to figure out what the market or different sectors may do next are taking the wrong approach, because you can't predict what is going to happen, said certified financial planner Carolyn McClanahan , founder of Life Planning Partners and a member of the CNBC Financial Advisor Council . "Sometimes things are going to cool off and you are going to regret trying to chase the market and making decisions based on current market behavior," she said. "The smart thing is to have an asset allocation already determined in advance — and that should be based not on what the market is doing but on what your goals and needs are." There tends to be general themes permeating the market at different times — and these days it is policy from Washington, D.C., said Adam Reinart, chief investment officer at Marshall Financial. "Trying to time that has been a bit of a fool's errand this year," he said. Case in point is the nosedive the market took after President Donald Trump announced his reciprocal tariffs in early April, which caused some investors to shift more defensively, he said. But that wound up being the wrong move since the market recovered, he said. In fact, investors should check their allocations after the recent run up to maintain a diversified, all-weather strategy, Reinart said. "With recent equity performance obviously improving from April 2, if the equity portion of an investor's portfolio has appreciated and has skewed risk more aggressively, then it could be a good time to realign risk more in line with their risk tolerance," he said. Grabbing income with dividend stocks Dividend stocks become more appealing to investors during rocky markets. However, they can play a role in an overall diversified portfolio even when conditions are less turbulent. In fact, investors should think about the total return of their portfolio — income plus capital appreciation, said Marguerita Cheng , CEO of Blue Ocean Global Wealth, a certified financial planner and another member of the CNBC Financial Advisor Council. She cautions against only thinking about income when the markets get shaky or moves down. "Including dividend payers in your portfolio can level out the volatility, but I want people to think about total return investing — which means that you have growth and value in there — and that provides you a little bit more flexibility," she said. An allocation to dividend stocks may become more important as people approach retirement and need income. McClanahan likes passive index funds for equity allocations. That can include those that follow broad market indexes — such as the S & P 500, small-caps and international equities. For those who are seeking income, she prefers bonds over dividend-paying stocks. She likes municipal bonds, which are free of federal taxes, and investment-grade corporate bonds. Reinart also likes fixed income over dividend stocks for investors seeking income, since they are getting paid more with bond yields right now. He maintains a broad exposure to the fixed-income market, including corporate bonds and core bonds. Building buckets Chuck Failla, founder and CEO of Sovereign Financial Group and also a certified financial planner, breaks down clients' portfolios into buckets based on financial needs — and sticks with it. "We really think that you should never make any changes to your asset allocation in a reactionary way," he said. "If you're reacting to the market, in my opinion, it's already too late." "Your asset allocation should be driven by — when do you need to use that money," he said. Money earmarked for the next 12 months should not be in the stock market at all — and should instead be in a money market fund or certificates of deposit, he said. Money needed in one to two years typically is in 10% equities and 90% fixed income, he added. The bond portfolio should skew towards high-quality, short-duration assets, while the stock allocation should focus on blue chips and high-quality dividend payers with a proven track record of growing their payouts. For instance, the ProShares S & P 500 Dividend Aristocrats ETF is composed of companies that have grown their dividends each year for at least 25 years. NOBL 1Y mountain ProShares S & P 500 Dividend Aristocrats ETF year to date The next tranche of three to five years raises the equity portion to 30%, and for six to 10 years is a 50/50 split. However, that is where Failla is prone to shift allocations to 75% if there is a pullback in the S & P 500 and market conditions are right. Portfolios earmarked for use in 10 years hold up to 90% to 95% in equities and also includes allocations to alternative investments such as private equity and private credit. In the longer term buckets, more aggressive growth stocks can be added, he said.
Yahoo
28-05-2025
- Business
- Yahoo
Advisors Weigh In on Trump's ‘Big, Beautiful' Bill
At more than 1,000 pages long, President Trump's tax cut bill is certainly big … but beauty may be in the eye of the beholder. Passed by the House last week, the proposed legislation now heads to the Senate, leaving financial advisors in a holding pattern as they assess the potential impacts. While some tax saving aspects could benefit clients, advisors said other provisions could negatively impact the economy at large. What we do know is the bill is far from finalized. 'To make any drastic portfolio changes based on a bill that struggled to make it out of the House is at best a risky trade, and at worst a speculative gamble,' said Sean Dann, director of investment research at Marshall Financial. This story was originally published on The Daily Upside. To receive financial advisor news, market insights, and practice management essentials, subscribe to our free Advisor Upside newsletter. The Congressional Budget Office projects the bill may add $3.8 trillion to the national deficit over the next decade — a key concern for the bond market. As of Friday, yields on 20- and 30-year Treasurys were trading above 5%, signaling growing investor concern over US debt. That market pressure could force policymakers to pull back spending, similar to the bond vigilantes of the Clinton era, said Mark Heppenstall, CIO at Penn Mutual Asset Management. 'The higher interest rates go, the less opportunity we have to fund things like tax cuts,' he said. 'Eventually, the costs become too burdensome.' But it's not just the tax bill driving up yields. Inflation, tariff uncertainty, and Moody's recent downgrade of the US credit rating are also contributing, Heppenstall said. 'The whole idea of US exceptionalism is beginning to unwind, and we're seeing a lot of stock and bond markets outperform US assets.' Please, Pass the SALT. Another major highlight for clients is the increase in the state and local tax (SALT) deduction. Highlights from the proposal include: Raising the cap from $10,000 to $40,000, which would primarily benefit residents in high-tax states like New York and California, advisors said. A proposed increase in the estate and gift tax exemption would raise it from $5 million to $15 million in 2026. 'Having a solid number to plan with helps a lot of high-net-worth individuals plan for their heirs more efficiently,' said Matthew Saneholtz, CIO at Tobias Financial Advisors. A novel program in the bill is the Money Accounts for Growth and Advancement, or MAGA accounts, which would provide children trusts seeded with $1,000 from the federal government. Parents could contribute up to $5,000 per year, which will then be invested in US stocks. The funds can go toward expenses, including college tuition, small business loans, and first-time home purchases. The accounts' eventual value will depend on how they stack up against more traditional savings vehicles like Roth IRAs, 529 plans, and Uniform Transfers to Minors Act accounts, said Catherine Valega, a CFP with Green Bee Advisory. 'Poor families will likely find themselves unable to add any funds themselves,' she said. 'This will benefit mostly the wealthy who already have enough options.' The post Advisors Weigh In on Trump's 'Big, Beautiful' Bill appeared first on The Daily Upside.
Yahoo
06-04-2025
- Business
- Yahoo
Advisors navigate a political divide in client outlooks
Financial advisors often advise keeping politics out of a portfolio, but do clients heed their warnings? A flood of new tariff policies from the Trump administration has sent shockwaves through the stock market. Advisors say that individual reactions, often dependent on their political views, can vary wildly from one client to another. Paula Nangle, president and senior wealth advisor at Marshall Financial in Doylestown, Pennsylvania, said market outlooks between her conservative and progressive clients can be quite different. READ MORE: Proactive comms can keep jittery clients from blowing up inboxes during market turns Following Donald Trump's inauguration earlier this year, one of Nangle's clients asked her if she could put all of her money into a "virtual mattress," she said. Nangle's conservative clients, meanwhile, have been "quite bullish" since the start of the second Trump administration, she said. That pattern is hardly new. Researchers have found that investors tend to be more optimistic when their favored political party is in power, viewing markets as less risky and more undervalued. As a result, investors whose political party is in power allocate more to risky assets. The inverse is also true. Midway through President Trump's first term, just 16% of Democrats said that the stock market would be higher a year from then, according to a poll conducted in December 2018 by Axios and SurveyMonkey. In that same survey, more than three times as many Republicans — 51% — said the stock market would be higher by the end of 2019. READ MORE: Uncertainty drives sharp decline in advisor confidence Partisan views on the stock market can have substantive impacts on individual investments. Da Ke, an assistant professor of finance at the Darla Moore School of Business at the University of South Carolina, found that even after accounting for factors like education, income and wealth, Democrats are less likely than Republicans to invest in the stock market. Financial advisors are seeing those partisan market views firsthand. Ethan Miller, founder of Planning for Progress in Washington, D.C., said that his more politically progressive clients have been pessimistic about the future of the economy as a result of the new Trump administration. "I had a client come to me recently and say, 'Oh, should we consider pulling out our money or investing more conservatively?'" he said. "And I pointed out that we were already invested what I would consider to be rather conservatively, based on our previous conversations … and they were like, 'Oh, okay, great!'" READ MORE: Crafting the perfect retirement portfolio: A financial advisor's dilemma Miller, whose firm serves left-leaning clients as a niche, said that his clients' pessimistic political outlooks shouldn't impact their long-term investment strategies. Other advisors take a similar approach. Ross Dugas, founder of registered investment advisor Scientific Financial in Houston, said market impacts from President Trump's recent tariffs have concerned some of his clients, but he reminds them that they're planning for longer time frames than any single administration. "We're looking at 10-, 20-, 30-year time frames many times, and what's happening today is usually not terribly relevant amongst really long time frames like that," Dugas said. "The market has always gone up and down, but it's also sort of maintained this upward trajectory when you look at it over long time periods. So I encourage people to kind of zoom back and just look at the big picture, as opposed to just focusing on what's happening today." Still, for clients worried about the state of the market, Dugas said there are a couple of actions advisors can take to help their clients without altering broader investment plans — namely, Roth conversions and withdrawal strategy shifts. "Roth conversions can become a little more attractive in down markets because we're essentially going from stocks and bonds to stocks and bonds, and we're just changing from a traditional IRA into a Roth IRA," he said. "So if we move $50,000 from account A to account B, we haven't lost any value. But if the market is down when we do that transaction, we're able to move more shares … into that Roth IRA, that more tax-advantaged account, potentially faster without as big of a tax impact." A down market is also a good time to reevaluate withdrawal strategies for retired clients, Dugas said. For retirees with buckets of both stocks and cash, now could be a good time to lean more heavily on their cash reserves so they're not liquidating positions in a correction. When played right, advisors say that market downturns can be full of opportunity for clients, especially those in the accumulation phase. READ MORE: Tariffs, taxes and market tumult: Navigating uncertain, volatile times "Like any market downturn, regardless of the cause, there are opportunities to … make a little bit of a silver lining out of what is, hopefully, a temporary downturn," Miller said. "What I always say to my progressive clients is, 'If the market never recovers, we have bigger problems than the balance in your 401(k), right?'" Miller said that strategies like Roth conversions don't make sense for his clients at this point, but the current correction does present a useful opportunity for other options, like tax-loss harvesting. Still, for all the unique opportunities the current market presents to investors, advisors say that client concerns aren't going away anytime soon. "We're certainly not at the end of this, right? We're not going back to the normal market cycle tomorrow," Miller said. "I anticipate having many more conversations as we get deeper and deeper into not just correction territory, but actually maybe bear market territory. I certainly am anticipating more of those conversations." Sign in to access your portfolio
