Companies Newfound Research and Simplify Asset management are partnering on a selection of new model portfolios that are giving investors more options on their equity holdings. The structured alpha portfolios are designed to target different growth offerings and provide different risk exposure. With the four portfolios coming in 20/80, 40/60, 60/40, and 80/20 equity allocations investors will have exposure to equity, rate, and volatility markets to mitigate financial risk. Fund advisors are trying to get outperformance from strategic capital efficiency rather than trying to pick winning stocks at the right time.

FINSUM: Even basic equity/bond allocation strategies in model portfolios are a good way for advisors to drill down the risk in a portfolio.

Covid-19’s continued crisis and the growing number of new strands have put lots of pressure on bond markets which has spiked an interest in annuities because there is no yield in fixed income. However, ETFs are looking to capitalize on annuities growing popularity because a defined outcome ETFs offer a lot of the same advantages as annuities. Buffer or defined outcome ETFs use options to track indices which means that by buying a series of put options and selling a series of call options they cap and floor their earnings which means a smooth stable ride that is an alternative to bond markets and annuities as an equity hedge. They also have an advantage over annuities because they don’t have the hefty upfront costs annuities usually have.

FINSUM: This is a great product to hedge the S&P but it isn’t the guaranteed income an annuity provides.

There are a record number of people with over a million in the 401(k) accounts which means even more people are considering retirement in the upcoming year. However, there are lots of factors that investors need to consider before even thinking about early retirement. Many consider a $1 million nest egg enough however the 25x rule (retirement is 25 times your annual expenses) might not go far enough. Rising healthcare costs are eating away at existing retirement accounts, and many fail to accurately gauge their retirement healthcare costs. Additionally, rising inflation is eating away at the paper wealth and needs to be a factor in. If you are planning on retiring early you will need a series of tax loopholes to do so without paying high penalties. Finally, an early retirement needs to rebalance their portfolio to a less risky strategy sooner which may leave you with less than you were projecting.

FINSUM: Meet with an accountant or your financial advisors so you can fully gauge how expensive an early retirement could actually cost.

Goldman Sachs updated its path for Fed tightening in 2022 calling for four rate hikes instead of three in 2022. This is a fairly aggressive path for tightening as the current Fed target interest rate is between 0%-.25% which means it will hit around 1-1.25 by Goldman’s forecast. The biggest reason for the rate rises is the tightening labor market. Previously the Fed leaned on slack in the labor market as an excuse to brush off inflation concerns but now they are no longer doing that. Goldman has the hikes penciled in for each quarter March, June, September, and now December. Goldman saw regional San Francisco President Mary Daly’s comments of shedding some balance sheet weight of indicating the Fed’s future path.

Finsum: The Fed hasn’t tightened this quickly in the post-financial crisis era, but broadly the markets and yields are in lock step with Goldman’s predictions.

Wells Fargo sent out a thank you note to external recruiters for their work and efforts in locking in lots of senior hires in 2021. Well’s is going to continue and extend many of the measures it implemented in 2021 into 2022 such as hiring offers for brokers and higher referral fees for outside recruiters. Wells saw their recruiting and retention drop after their scandal in 2016 and it’s been a continuing effort to get back to par with hires. In addition to all the sweetened deals surrounding recruiting there are also measures such as pay cuts if managers lose brokers or don’t hit sufficient hiring statistics. Well’s decision to close their international business has also been a major contributor to their inability to gain transactions in recruiting efforts.

Finsum: Wells used to stand out for their Broker compensation, however competitors are stepping up, and Wells no longer stands out.

Investors have been wary of tech stocks as of late and instead are parking their money in investment-grade corporate bond funds. This week the sector garnered a whopping $2.9 billion in inflows which is the biggest week since July, over six months ago. Markets are expecting the Fed to hike this year, which means borrowing rates will start to hurt the growth-oriented stock, and the Nasdaq slumped to its worst start since 2008 as a result. However, the rising yields are also pushing more investors into relatively riskless corporate debt. Junk bonds didn’t get the same bump as many indices were down with a hawkish Fed.

Finsum: Don’t sell on tech stocks just yet, but it could be a bearish year for the number one market segment the last year if the Fed hikes four times!

House prices are at all-time highs, and since a small slump at the start of the pandemic have really seen rapid growth but are they in a bubble? Long story short, probably not, because a few key metrics are keeping them elevated. Federal Gov assistance programs have diminished the foreclosure numbers. Added to that the trillions poured into countless QE and MBS purchases have made mortgage rates be at near all-time lows. Finally, there appear to be real shortfalls in different housing markets, and the pandemics work from anywhere policies are having strong growth in places like Boise, Austin, and Orlando. All of these factors come together to say that there is a relatively low risk of a housing bubble but to keep your eyes peeled.

Finsum: The Case Shiller home price index is at an all-time high but more importantly growing at an all-time rate, this is getting close to bubble territory but it is lacking the speculative component.

Timing is everything in the market, and investors have a lot of reasons to be cautious in the bond market. A confluence of factors is making it likely that bond yields might jump up in 2022, particularly on longer-duration government debt. This is concerning as bond yields and prices move in the opposite directions so jumping on long-term debt right now could be deadly. For instance, the latest treasury yield rise sent an equivalent of an 800-point Dow Jones plunge in the iShares 20+ Year Treasury ETF (TLT). This is potentially scary as the markets are expecting three 25 basis points hikes from the Fed this year and inflation could also send bond yields rising. Most funds would see between a 1-3% hit on a 30-basis point yield spike.

Finsum: It’s critical to time the market but you might just stay away from long-term bonds, and stay on the shorter end of the duration.

A slew of new technological advancements are coming to Financial services and portfolio management software in 2022. The biggest changes will be modernizing networks, edge computing, and decentralized infrastructure like Web3. This means a lot of financial technology will begin moving to the cloud. In addition, actual payment transactions will take place on the technological device and not through a central network, which improves efficiency and processing speed. This doesn’t come at a big cost either as it’s a more robust and safer technology for payments solutions. Finally, in a decentralized financial industry, anyone can turn their personal capital into collateral and extract yield others can borrow from eliminating financial middlemen.

Finsum: These are wild changes in decentralized finance but undoubtedly a couple of years off, however cloud computing is a game-changer for portfolio management software.

According to a report from Charles Schwab registered investor advisor firms with less than $100 million in assets are improving recruiting efforts as of late. In a poll, it was the fourth listed initiative among RIAs in 2021, up five spots from the previous year. How these new recruiting efforts are delegated is also interesting with a quarter of RIA’s planning on adding relationship managers and 15% looking to add a client-facing management role. Additionally, more than half the firms are also adding back office and admin staff. Talent is an increasingly important commodity in the average RIA firm and many new efforts will be made to obtain it.

Finsum: It will be interesting to see exactly how the details of obtaining new talent come out: whether that’s specific programs or bonus-based incentives.