The risk of a stock market crash is increasing due to a growing number of extreme situations including technology driven deflation, negative interest rates, and accelerating downward equity market momentum following the Brexit referendum.
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Brexit is No ‘Armageddon’ As Advisors Calm Jittery Investors
Investors cautioned to wait for volatility to subside
Daisey Maxey and Veronica Dagher, 6/24/16
“Remain calm” and keep your long-term perspective amid the market’s post-Brexit volatility, financial adviser Christopher Cordaro told clients Friday.
“We will not panic, but rather wait for volatility to subside and continue evaluating which investments offer the most suitable risk/return trade-off for the future as the dust settles,” Mr. Cordaro, chief investment officer of Regent Atlantic Capital LLC in Morristown, N.J, wrote in a letter to clients Friday.
That was a message many financial advisers were imparting to clients after the U.K. shocked global financial markets by voting to leave the European Union in Thursday’s referendum.The startling outcome will make the U.K. the first nation to leave the 28-nation bloc.
Adding to investors’ jitters, U.K. Prime Minister David Cameron said following the referendum that he planned to step down.
…The Vanguard Group is cautioning clients that while it is worthwhile to keep abreast of global events, such as Brexit, they shouldn’t be making “tactical or short-term changes to their portfolios,” a spokesman for the asset manager said in an email.
The uncertainty due to Brexit will likely rattle the markets until its ironed out, which could take several years, and a portfolio that is diversified across asset classes and regions offers the best protection, Vanguard said. Vanguard’s diversified balanced funds, such as its Target Retirement Funds, will continue to maintain global exposures consistent with the funds’ investment objectives and policies, it said.
…Some advisers said they’ve been de-risking, and may do a bit more.
David Kreinces, founder and portfolio manager of ETF strategist ETF Portfolio Management LLC, said he has kept some cash on the sidelines for clients in recent months, and will be “shaving discretionary risk assets” Friday, given the magnitude of the downside risk due to Brexit.
“We really need to see the market stabilize following this type of shock before moving back to a fully invested position,” Mr. Kreinces says.
Since February, he has been encouraging clients with a growth asset allocation—typically 70% in risk assets, to shift to income and growth—typically a more balanced portfolio with 50% in risk assets, he says. This approach is best for most investors now given the “extreme environment” we’re in with regard to negative interest rates, the general weakness in equities in recent months, and the caution we’re hearing from regulators about risks of a “Lehman-like moment,” Mr. Kreinces says.
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