By Cyril Tuohy
Market volatility leaped to the No. 1 concern among financial advisors in the second quarter, up two spots from the previous quarter, according to a new poll of 200 advisors by Fidelity Advisor Investment Pulse.
In the first quarter, the No. 1 concern for advisors centered around portfolio management, followed by interest rate risk, Fidelity said.
“Based on our Q2 survey results, we know that many advisors are thinking about a possible market correction, but at the same time they are looking for ways to find growth and generate income for their clients,” said Scott E. Couto, president of Fidelity Financial Advisors Solutions.
Advisors have a fine line to tread: They need to ensure the portfolios of their clients generate enough income to ensure an affordable standard of living, while at the same time making sure there’s enough principal remaining to outlast longer lifespans.
Many baby boomers may be living relatively comfortable retirements. However, their financial advisors need to defend against longevity risk, and that means investing in asset classes capable of generating higher returns.
With higher returns comes more risk, which is acceptable for clients with longer time horizons.
Couto also said in a news release that “the differences between winners and losers among asset classes and individual securities are likely to increase,” a phenomenon that will favor active asset managers.
So far this year, the market has done well. The Standard & Poor’s 500 index finished the first half of the year up 6.05 percent from the beginning of the year. That puts the benchmark index on track to finish the year up about 12 or 13 percent.
Average total stock market returns hover around 8 percent. Last year, the market did exceptionally well, with the S&P posting a gain of more than 30 percent in 2013.
Despite the concern regarding market volatility, financial advisors are fairly bullish about 2014. Unemployment has been dropping steadily and the latest economic numbers show the economy growing at 4 percent annual pace in the second quarter, slightly better than the forecast 3 percent growth.
A poll released in June by the SEI Advisor network revealed that 76 percent of advisors said growth of the benchmark Dow Jones industrial average would come in somewhere between zero and 10 percent by the end of this year, and an additional 17 percent predicted growth of the DJIA at between 11 and 20 percent by year’s end.
Steve Onofrio, senior vice president of sales and service with the SEI Advisor Network, said in a news release that results of the poll showed the psychological after-effects of the recession were wearing off and that advisors were “becoming more optimistic about the market.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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