Updated: Monday, August 14, 2017, 10:03 AM
Are North Korea’s threats keeping you up at night, making you fret about your portfolio? Should you be raising cash?
No, and don’t worry — we’ve survived worse before, say local money managers and investment advisers.
“Investors should never react to short-term events like terrorism or wars,” said Dan Roccato, founder of Quaker Wealth Management in Moorestown. “That’s not a good investment strategy. Since President Trump’s election, markets have been quite giddy. The calls we’ve gotten from clients in the past months have been asking us, ‘Is this rally for real?’ And the economy is healthy, and so is the stock market,” he said.
His firm’s recommended cash allocation is no higher than 5 percent for most clients, and the firm uses the Vanguard Short-Term Investment-Grade Fund (VFSUX) as a cash equivalent. Other fixed-income choices include TIPS (Treasury Inflation Protected Securities) and the Vanguard High Yield junk-bond fund (VWEAX).
Back in January, Quaker sold utilities and telecommunications sectors and rotated into health care and international names. The firm uses mostly ETFs (exchange-traded funds) and sector funds such as the Vanguard Health Care Fund (VGHCX) and iShares Nasdaq Biotechnology (IBB).
George C. McFarland, president and chief investment officer of Pennsylvania Trust, a Radnor-based wealth management firm, said it has been buying and holding technology shares, such as American Tower, and financial shares, such as Citigroup.
“The Trump administration has been able to effect some deregulation without Congress, so banks are the beneficiary of that. Financial stocks had a run-up post election, and then as their first 100 days came and went without progress, they went sideways a good bit this year, and then resumed their advance,” he said.
The firm is underweight energy, as “we see oil mired in a range of $40 to $60 a barrel. Industrials we really like, such as Raytheon and Caterpillar, which we own.”
Pennsylvania Trust might sell a stock in one portfolio and own it in another. For instance, in its Growth strategy, the firm doesn’t own Verizon and AT&T because “they had a few years of attractive earnings growth, but that’s behind them now.”
However, in its Equity Income strategy, “we do own Verizon because it has a 5 percent dividend yield and makes sense in that portfolio.”
McFarland will offer a small allocation to gold as a hedge against event risk and a falling dollar.
“We do have that conversation with clients, and we will either recommend a low-cost gold-mining ETF or access to physical gold in a vault.”
What about the robo-advisers, which automate the investing process? Betterment, an early robo-adviser with $10 billion in assets, “feels strongly that we do not want any cash drag. We try to hold zero in cash at all times,” said Alex Benke, Betterment’s vice president of advice and planning, based in New York.
However, for clients who request it, “we do have lower-risk offerings such as a portfolio of all short-term Treasuries, which is a cash equivalent,” using the iShares Short Term Treasury ETF (SHV).
“It doesn’t earn a ton, but it’s incredibly safe,” Benke added. Betterment hasn’t heard from clients asking to sell and convert their portfolios into cash due to geopolitical events, but “we’ve heard worries about the stock market. They’re asking whether now is a good time to invest because the market’s so high. That is just a conversation about goals and time horizons. And we try to keep our clients fully invested at all times.”
At the end of 2016, “we recognized that there was a great buying opportunity in both international and emerging markets. Both of these sectors underperformed in the U.S.,” said Lisa Barram, cofounder of the Retirement Prosperity investment advisory firm, headquartered in Fort Washington.
So the firm bought into the Gradient Investments’ international dividend-paying stock portfolio, up 14.76 percent year to date, vs. the S&P 500’s gain of 11.82 percent.
Within U.S. markets, “growth stocks have outperformed value stocks this year, and a handful of companies are driving those gains. Many large-cap value stocks have a dividend yield of over 2 percent and as much as 4 percent,” she added, including Verizon, Johnson & Johnson, Cisco, Target, and AT&T. A lot of Barram’s clients rely on dividends as income to live on.
Come get answers to all your questions at the Social Security Administration’s free seminars in September. Register for one of four sessions on Wednesday, Sept. 6, at either 9 a.m. or noon; and Tuesday, Sept. 26, at either 9 a.m. or noon.
Seminars take place at Temple University Center City, 1515 Market St., Room 222. A photo ID is required to enter the building. The free seminars are open to the public, but registration is required. To register, send an email to firstname.lastname@example.org or call 866-398-3469, hit 1, extension 29305.