Question: With interest rates likely going up soon, what changes should people consider making in their stock and fixed-term investments?
Answer: Although interest rates have nudged up nominally, they remain near historic lows. While it is unclear if rates will rise significantly in the near future, if that were to occur, investors who perceive their corporate, government and municipal bond mutual funds to be “conservative” may be unpleasantly surprised by the downside volatility. In a low-interest-rate environment, investors may mitigate this risk by sticking with short-intermediate-term individual bonds and CDs and other stable value alternatives. If the stock portion of one’s portfolio consists of a broadly diversified portfolio of index funds, no near-term changes should be made in response to rising interest rates.
PROFILE
JR Robinson
>> Title: Owner/co-founder of Nest Egg Guru LLC; owner/founder of Financial Planning Hawaii Inc.
>> Education: B.A. economics, Williams College, Williamstown, Mass.
>> Email: Guru@NestEggGuru.com |
Q: Should people make any changes now with their investments because of recent volatility with the stock market?
A: The short answer is no.
Q: Why?
A: There is just an enormous mountain of empirical research that says as a whole individual investors tend to make pretty bad decisions. When things are going bad in the stock market they sell, and when the things go up they want to buy. If you were to go out and buy a Vanguard Index Fund, you do not do as well as the fund itself does because you go in at the wrong time and out at the wrong time. The basic concept of investing in the stock market, and the bond market to a degree, is you need to understand that volatility comes with the turf. The only reason it seems different is because it hasn’t gone down in a long time. It just happens. It is going to happen again because it always does.
Q: Should we buy more because the market has gone down?
A: I think that is a wise thing to do — to use opportunities when the market is depressed. Yeah, buy things on sale. It is the only retail place when things get down — marked down 20 percent or 30 percent — and people don’t tend to buy.
Q:What is a robo-adviser?
A: A robo-adviser simply means an automated investment platform where you put your money in and it is automatically managed for you. They tend to have extremely low fees and offer a really well-designed user experience. What all of the platforms have in some way, shape or form is they are applying that model and making it available to the masses. You couldn’t, as a financial planner, you couldn’t implement that on your own.
Q: What are some examples of robo-advisers?
A: Betterment and Wealthfront.
Q: What do you think about robo-advisers?
A: I am a big fan of the robo-adviser concept. I think they are disruptive. It is still evolving how people perceive them. The value that financial advisers offer is far more than just investment. The two (robo-adviser and traditional financial adviser) aren’t mutually exclusive.While robo algorithms may outperform the human planner, the robo-adviser’s inability to deal with subjective issues and matters that require human interaction may confound programming logic.
