Investment Challenges are Changing Traditional Advice

If you are unsure about how to invest your retirement assets these days, the professionals who do this for a living share your pain. Low interest rates make finding safe returns very difficult. Market volatility is distracting, if not downright scary. Returns on many types of investments are so similar these days that traditional diversification strategies don't work. And many clients want their assets to grow and don't embrace traditional capital-preservation priorities.

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In response to this unusual mix of conditions, many advisers have moved away from traditional approaches, according to a survey of more than 160 U.S. financial advisers commissioned by Natixis Global Asset Management, which has roughly $750 billion in assets under management. Among its key findings:

-- The rule of thumb that portfolios should reflect a mix of 60 percent stocks and 40 percent bonds is disappearing. Nearly half the advisers surveyed think there may be better ways to meet client needs.

-- Warren Buffett may hold onto his investments for a long time, but "buy and hold" investment advice is questioned by roughly three quarters of both advisers and their clients.

-- Investors still value safety, but increasingly want to take more risks to boost returns. Nearly 60 percent of advisers say their clients rank asset growth above protecting principal.

"Our research confirms that financial advisors are questioning the merits of time-honored portfolio construction strategies and looking for new solutions," John T. Hailer, Natixis president and CEO, said in a statement. "We think that by putting risk first, managing volatility and incorporating alternative investment strategies, investors can both reduce risk and produce the growth that will help allow them to meet their long-term savings goals."

[See 401(k) Plan Sponsors: Workers Can't Afford to Retire.]

In moving at least partly away from traditional approaches, Natixis said, alternative investment strategies are gaining traction. Such tools, it explained, include hedge funds, private equity funds, selling short, commodities and currencies, and real estate. More than 90 percent of the advisers surveyed said they had discussed alternative approaches with clients. Half said they employ them regularly, while only 3 percent never do so.

The clients of the advisers surveyed for Natixis had accounts averaging more than $750,000. They are likely to be more sophisticated than investors with less wealth who do not use advisers. And while they may be embracing investment markets in new ways, smaller investors are, in many cases, simply running away from all market investments.

Charles Schwab recently released one of its periodic retirement surveys based on interviews with a broad group of investors, in terms of both wealth and age. Its findings support a more traditional set of investor goals, particularly in terms of the balance between seeking investment gains and protecting the value of retirement assets.

"If you survey advisers, you're going to skew to the more affluent," says Schwab executive vice president Carrie Schwab-Pomerantz. "Most people aren't looking for big returns. They're looking to protect their wealth." In listing major investment concerns, Schwab found these leading responses:

1. Protecting retirement savings during a period of market volatility (25 percent)

2. Generating enough income to live on if interest rates remain low (23 percent)

3. Striking the right balance between portfolio growth and asset protection (20 percent)

4. Growing retirement savings to outpace inflation (18 percent)

[See Why Are Younger Workers Attracted to Guaranteed Income?]

Only 6 percent of those surveyed said they planned to take additional investment risks during the next six months.

Schwab-Pomerantz says she was particularly struck by how conservative younger investors have become. Retirement experts stress that putting aside even modest amounts of retirement savings at young ages can produce enormous lifetime gains. Yet Schwab found that younger investors are generally shunning the market.

"We've got a whole new generation of recession-era kids," she says. "They are much more cautious. These young people have experienced nothing but trouble during their short lives as investors." They are attuned not only to investment issues, but also to the nation's serious deficit and spending problems. "The debt conversation has become mainstream."

Many smaller investors lack the financial literacy to make sound choices even when they do invest their savings. To protect their assets, for example, Schwab-Pomerantz says, "a big percentage is investing in cash instruments," even though such holdings do not protect them from inflation. "Again, it's the lack of financial literacy in this country," she says. "A lot of people don't understand the impact of inflation on the dollar."



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