Displaying items by tag: advisors

In an article for Wealth Management, Iraklis Kourtidis discusses how the investment industry needs to evolve in order to reduce risk and improve returns. Essentially, it tends to look at the past to make assumptions about the future, specifically regarding correlations between asset classes. 

He believes that too much time and energy is spent on discussing how investments have performed in the past which doesn’t make sense in a world with efficient markets. Instead, investors and advisors need to pay more attention to the future. And, this is even more important with the advent of direct indexing.

Kourtidis believes there are better questions to ask with direct indexing such as will these investments adhere closely to my values? Another is will this strategy properly weigh the tradeoffs between tracking errors, tax efficiency, and personal values? Finally, investors and advisors need to determine whether the additional cost and effort of direct indexing will yield better results than a traditional approach, specifically in terms of tax benefits?

These are forward-looking questions that do have answers unlike questions about the market’s direction, monetary policy, or portfolio returns. Overall, direct indexing means that investors need to consider a different set of questions. 

Finsum: Direct indexing creates an entirely different set of opportunities and challenges for investors and advisors. Here are some things they need to consider that they wouldn’t with traditional investin 

In an article for SmartAsset, Patrick Villanova CEPF discusses the pros and cons of investing for retirement in TIPS, Treasuries, and annuities. All of these are methods for retirees to generate income during their retirement. And, this is increasingly needed given that traditional pensions are being phased out of existence. 

TIPS are treasuries that are designed to protect against inflation. In essence, the yield is fixed, while the principal varies based on inflation. Some will create income through buying TIPS of different maturities, creating an income stream that is indexed to inflation. 

An annuity functions similarly but without the inflation component. Essentially, it’s a way to turn cash into an income stream. Treasuries are the most straightforward vehicle for saving, and it’s the benchmark that other methods are compared against. 

According to Villanova, the best strategy ultimately depends on a retiree’s lifespan and the rate of inflation. Assuming a moderate inflation rate of 2.5%, Treasuries would outperform annuities and TIPS slightly. If inflation returned to levels seen in the past decade, then Treasuries would perform the best. If inflation were to average 5%, then the TIPS strategy would handily outperform Treasuries and annuities.

However, annuities would handily outperform in the event that a retiree lives longer than 20 years. Given that the income of annuities is fixed, the value of this income would be diluted by higher levels of inflation. 

Finsum: Annuities, TIPS, and Treasuries are 3 of the most popular methods to create income during retirement. Patrick Villanova compares and contrasts each to see which is the best strategy for retirees.

In RealMoney, Jim Collins, the founder and President of Excelsior Capital, discusses his DEATH model portfolio which bets against hype-fueled companies via short-selling and put options. 

The portfolio has a 74% gain over the past year, even managing to hold onto impressive gains despite recent strength in equities. It has a simple construction of 10 equally weighted positions. The guiding principle behind the company is to bet against shaky companies with lofty valuations. 

Some examples include Teladoc Health and SelectQuote which were among the best-performing stocks in 2020. However, this resulted in valuations that reached absurd levels. Collins believes that one factor in these stocks’ gains were inflows into Ark Investments’ family of funds as these were two of its largest holdings. Now, these stocks are falling back to Earth in terms of valuation and stock price, while Collins sees more downside. 

Collins believes that these short-selling opportunities emerge when analysts and fund managers stop applying basic principles of valuation to their holdings. He cites Peloton as an example given its massive valuation that was similar to a software company despite the company being in the business of selling exercise equipment which is historically a competitive, low-margin business. 

Finsum: Even with recent strength in equities, Jim Collins continues to see opportunity on the short-side. His DEATH model portfolio is constructed to bet against 10 of the most hype-fueled companies in the market. 

Financial advisors looking to build an online presence must have a content strategy that is effective in terms of converting visitors into leads and then into prospects. However, these efforts have to be efficient in terms of impact given the time and energy involved.

In terms of efficiency, the best content strategy for advisors is to create evergreen content. In addition to being effective, evergreen content also has a high return of investment, because it can be reused in the future rather than most other types of content which can be only used once. In contrast, most online content has a short shelf life.

A big challenge for advisors creating online content is that it takes time, patience, and repeated postings to see any results. Ideally, this content is informative, educational, and entertaining while transmitting your authentic personality. 

Some effective strategies for evergreen content are to create posts around topics like savings, planning, and investing that are educational in nature and consistent with your brand and messaging. Another option is to create evergreen content around market events that can be posted on FOMC decisions, elections, or during big swings in the market when people are naturally more interested in financial discussions. 

Finsum: Creating effective online content can be time-consuming and challenging for advisors. However, one strategy is to create evergreen content around topics that can be regularly reused.

In a piece for Vettafi’s ETFTrends, James Comtois covers how direct indexing can improve portfolios through increased diversification while also leading to savings on capital gains taxes. The strategy achieves both objectives by helping portfolios from becoming overly concentrated.

Typically, no stock should account for more than 10% of a portfolio due to the risk of a significant decline in price or a bankruptcy filing. Portfolios can become overly concentrated due to a client receiving stock options, early investments in a company, or large holdings of vested stock. 

For clients in these unique situations, the traditional investing strategy would not suffice. Instead, they need a unique solution. Simply selling these positions is not prudent as it could lead to a massive tax bill. 

A better option is direct indexing which lets clients own the actual index holdings in their portfolio. Then, the portfolio can be adjusted to reduce overconcentration. Further, tax losses can be harvested on a regular basis during periods of market volatility. Subsequently, holdings of the overconcentrated position can be sold with the capital gains offset by these harvested losses. 

Finsum: A unique problem for some investors is becoming overconcentrated in one position. Direct indexing offers a solution as it can help reduce the tax bill of selling these positions and lead to more diversification.