What Wealth Advisors Tell Wealthy Clients About Inflation, Rates and Crypto
It’s not just about crypto. Wealth managers at some of America’s largest companies say they have advised clients on broader investment issues, such as inflation and interest rates, as the US economy reopens and the Biden administration lobbied for sweeping changes in the tax code.
They discussed these and other questions at the Bloomberg Wealth Summit on Tuesday. Here’s a roundup of their most notable thoughts on what to think about the markets and the economy in the coming months:
Inflation has become one of the most controversial topics in financial circles lately, with concerns over government stimulus and a possible post-pandemic consumer spending spree. can drive up prices.
âI thought for years that inflation was being kept stifled by the incredible pace of productivity thanks to technology,â said Greg Fleming, President and CEO of Rockefeller Capital Management LP.
Also Read: A Guide To Protecting Investment Portfolios As Inflation Risks Rise
Investors should always be concerned about inflation, said Catherine Keating, CEO of BNY Mellon Wealth Management.
âIf you think about the business cycle and what often ends a business cycle, it’s an increase in inflation that causes the Federal Reserve to raise interest rates, which can, under extraordinary circumstances, lead to a recession and a bear market, âshe said.
Just Tuesday, Financial markets were troubled when Janet Yellen said interest rates may have to rise moderately to keep the economy from overheating. The Treasury Secretary’s comments crashed into a stock market already showing signs of nervousness over rising prices.
Still, Keating expects inflationary trends to be transient, given a number of long-term deflationary factors. These include an aging economy, technological disruption and a potential increase in the cost of debt.
The onset of the Covid-19 pandemic marked an extraordinary year for the market, with new individual investors cramming stocks, volatility is increasing, and recently tech stocks are selling after months of skyrocketing increases.
Rather, advisers have made investors think beyond the daily narrative.
âDon’t invest by making headlines,â said Penny Pennington, Managing Partner of Edward Jones.
Gina Martin Adams, chief equities strategist at Bloomberg Intelligence, wondered if the markets were in bubble territory. Despite the headlines, there is little evidence that there has been a dramatic rise in prices detached from fundamentals causing irrational exuberance; these would be bubble conditions, she said.
Against the backdrop of past bubbles such as those of the 1920s or 1990s, the current surge in stocks is “far from close” to those levels, she said.
“Our view is that if there are symptoms of a potentially emerging bubble in the stock market, we may be just at the very beginning,” she said.
Ida Liu, global head of private banking at Citigroup Inc., asks her clients to move beyond their “original bias” in favor of the geographic diversity of their portfolios. She mainly sees opportunities in China.
Where to go from this low base? There might be a hike on the horizon.
âInterest rates are at extremely low levels, truly the lowest of our professional careers,â said Keating of BNY Mellon. âSo we think you will see an interest rate hike at some point.â
Liu of Citigroup said it was a mistake to sit on liquidity in such a low interest rate environment. âWith rates where they are, your money isn’t working for you. So you might as well invest, âshe said.
Advisers said the negotiation and compromise would result in changes to the final version of US President Joe Biden’s proposal to raise taxes on the rich and target capital gains.
The slim Democratic majority in the Senate means the proposal will be scaled back in some ways and lawmakers will emerge with a less ambitious plan, BNY Mellon’s Keating said. The next question is when – when would the plan pass and if it would be retroactive, she said.
Given the uncertainties, it is difficult to advise clients on specific actions. But there are still some steps they could take, Keating said.
If possible, one option is to speed up some income to that year, so that they fall under the current tax plan. For example, converting a traditional IRA that requires taxes to be paid now to a Roth IRA would reduce future tax liability, she said.
Another option is for clients to further diversify their portfolios away from the biggest tech stocks in the market.
âWe talk to them about a whole range of strategies and including some that really don’t really have to do with the market at all,â Keating said. “They have to do with the interest rates and the very low interest rate foreclosure that we have right now.”
There are three main concerns about cryptocurrencies that advisers are trying to resolve, Keating said. One is the security and safety of private keys. The second is liquidity and ensures that investors who spend money in this asset class also have flexibility, and the third is volatility, with some assets like Bitcoin having seen wild swings over the past year. .
âWe are looking for ways to address these concerns,â Keating said.
Betterment – the robo-advisor with around $ 30 billion in assets under management – says he’s still doing his research.
âWe’re confident that if we can provide the right kind of context and advice, it’s okay to participate in some of these new asset classes,â said CEO Sarah Levy. âI would like us to find a way to responsibly offer crypto, but I can’t say we’re there yet. I think we are still in a watch and learn mode. “
Liu from Citigroup said that while there is significant interest in crypto, she does not see them as a âprimaryâ opportunity, but rather as a latent opportunity that some clients can invest in.
– With help from Caroline Gage, Caroline Hyde, Erik Schatzker, Suzanne Woolley and Taylor Riggs