Conservative Money

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Dec 22, 2008 10:08 pm

I've been thinking about this a little bit with the bad market.  In talking to many other advisors, it seems some advisors are more concerned with getting the best returns or outperforming the benchmark by as much as they can.  I understand the fun in that and also the fact that some clients seek that out.


But, having ACAT'd in numerous accounts, it is very apparent that the conservative portion of a portfolio is way overlooked.  For whatever reason, possibly the fact that it pays less to implement or that it isn't as exciting as being "long and strong".
 
That being said, do you feel you properly have addressed or do address this portion of clients' money?  If not, why don't you spend more time on the conservative money portion?
 
And after this market wreck, I don't consider the 40% bond allocation in a 60/40 portfolio to be safe. 
Dec 22, 2008 10:27 pm
iceco1d:
And after this market wreck, I don't consider the 40% bond allocation in a 60/40 portfolio to be safe. 
 
Why?
 

 
Ice, I should've have excluded you from this thread.  I know you're ok and somewhat legit.
 
I just feel with some bond values way way way down, even they aren't as conservative (in this environment) as some clients would like.  And most bond portfolios aren't even diversified like they should be.
Dec 23, 2008 2:44 pm

I put more time than before with the fixed income portion of my clients allocation this year when bonds started behaving badly.  True, it was hard to look for bond funds that were supposed to go up when equities went down.  That's why I'm short corporate bonds for now.  However, there are (or were) good funds in intermediate to long term government bonds in the past two to three months.  I've been more selective with the bond allocation rather than more diversified.

Dec 23, 2008 3:11 pm

Snags, it's apparent you're leaning toward "safe money alternatives," i.e. annuities.

 
I've thought many times about finding a relatively conservative area in which to specialize (Munis, VAs, Fixed annuities) and doing nothing but that.
 
I just have a hard time walking away from helping people create balanced portfolios via a variety of asset classes. I still have to believe that they'll benefit most from that approach over the long run.
 
I've also grown suspicious about just how "safe" anything is these days. Insurance companies are changing and/or suspending their VA guarantees, fixed annuities are subject to all claims, munis are getting pounded, etc.
Dec 23, 2008 8:27 pm
Borker Boy:

Snags, it's apparent you're leaning toward "safe money alternatives," i.e. annuities.

 
I've thought many times about finding a relatively conservative area in which to specialize (Munis, VAs, Fixed annuities) and doing nothing but that.
 
I just have a hard time walking away from helping people create balanced portfolios via a variety of asset classes. I still have to believe that they'll benefit most from that approach over the long run.
 
I've also grown suspicious about just how "safe" anything is these days. Insurance companies are changing and/or suspending their VA guarantees, fixed annuities are subject to all claims, munis are getting pounded, etc.
 
I'm not walking away from long-term riskier investing.  Quite the contrary.  I'm just not going to seek it out. 
 
This is about sales.  It's the time to build a substantial book of business.  When the market has plummeted, people are scared.  I want to sell to that fear in 2009.  With my foot in the door, I can earn the riskier stuff later.  Ultimately, I want to do what other advisors aren't doing.
 
Let's face it.  Most investors only hear about the "let's make money" side of things.  Sure, some of you guys do more than that, but how many accounts have you ACAT'd in that have too much risk? 
 
Many advisors simply don't get excited over the safe stuff.  What are you going to say on the phone that makes you sound different than everyone else?  How many advisors call up and say, "I've got this yield, or I help plan for retirement, or I'll do a complimentary review"?  That's what people hear every day. 
 
I ask myself, what's the easiest way to get all of a client's assets?  I figure by going after what others aren't, getting it and servicing the heck out of them, my foot will be in the door and I'll be there when someone F's their other stuff up or doesn't service them as well. 
 
 
Dec 31, 2008 1:43 pm

I'm convinced that being market neutral is the way of the future to be conservative. I've been toying with some convertable arbitrage models. It's nothing new and almost all the hedge funds still alive are doing it. I think I can do just as well and get 7 to 9 % return reagardless of what the market does. I'm thinking that's the future of being conservative. That ans having 5 years in cash to ride out a business cycle without cashing in securities for pennies on the dollar.

Jan 1, 2009 9:53 am
Gaddock:

I think I can do just as well and get 7 to 9 % return reagardless of what the market does.




Sounds familiar (Madoff) - I wouldnt say those words to any clients or prospects in this environment.!!

Jan 1, 2009 6:06 pm
Gaddock:

I'm convinced that being market neutral is the way of the future to be conservative. I've been toying with some convertable arbitrage models. It's nothing new and almost all the hedge funds still alive are doing it. I think I can do just as well and get 7 to 9 % return reagardless of what the market does. I'm thinking that's the future of being conservative. That ans having 5 years in cash to ride out a business cycle without cashing in securities for pennies on the dollar.



The idea of having sufficient reserves(perhaps even excess) makes a LOT of sense, and I think many advisors are hurting right now because they didn't follow that advice.

As for convert arb, it would be my understanding that lots of the hedgies got hurt in that strategy when normal interrelationships blew up.....so might want to check into that carefully.

Jan 1, 2009 11:52 pm

I sell a lot of whole life insurance because it's the best vehicle for someone's long-term savings dollars.  Tax-free, creditor-protected (in my state), dividends that can't be wiped out by a downswing in the market, liquid.  Plus, it's great to have a permanent death benefit when you are planning for retirement income. 

Jan 5, 2009 11:41 am
snaggletooth:
But, having ACAT'd in numerous accounts, it is very apparent that the conservative portion of a portfolio is way overlooked. For whatever reason, possibly the fact that it pays less to implement or that it isn't as exciting as being "long and strong".



That being said, do you feel you properly have addressed or do address this portion of clients' money? If not, why don't you spend more time on the conservative money portion?



And after this market wreck, I don't consider the 40% bond allocation in a 60/40 portfolio to be safe.





I don't think that brokers have overlooked the "conservative" portion of a client's portfolio, rather that the opinion of what "conservative" means from the clients perspective. It's one thing for the client to say they can stomach a 40% drop in the equity portion of their portfolio and a whole other to see a $200k (or whatever) cut in their net worth.

As far as going after that portion of a prospects account, I'd say take whatever piece they're willing to give you and as you said later, service the hell out of them to gather the rest.