The (Investment) World Is Changing And You Need To Get On Board
By Roger Nusbaum, AdvisorShares ETF Strategist
Fast Company posted an article that looked at existing jobs that are likely to change dramatically or disappear altogether over the next ten years. Change happens of course often spurred along by technology and/or innovation.
Capital markets are no different. Certain jobs don’t exist anymore or there are fewer of them (like exchange personnel) and new products have come along that seek to offer new exposures or tap into some trend. Current jobs will disappear (robo advisors will supplant some portion of RIAs even if not a lot of them) and products will continue to evolve.
You may have heard about the leap second. On June 30th, world clocks will be adjusted by one second as happens every so often. According to the WSJ this is the first time the adjustment will happen during trading hours since 1997. It wasn’t a big deal back then compared to what could be coming now because of the radically increased prevalence of technology through things like algorithms. While this is unlikely to be a big deal, if it is, it will be due to changes in technology.
More important than how the world, investing and otherwise, has evolved up to this point is how it will evolve in your future. What sorts of things have you learned about in the last five years that you never needed to know about before? You probably know what a SIV is, a CDO; you know a lot more about quantitative easing, you have a sense of the size of the Fed’s balance sheet, the country’s debt to GDP, deficit to GDP and quite a few others that you did not know about if you were a market participant in the 1990’s or earlier. Five years from now it is likely we will have learned about things moving markets that don’t matter now which will lead to changes in our engagement in markets.
Of course ETFs fit in to this discussion it wasn’t that long ago that you could access some pretty basic stuff through ETFs, like bonds. iShares first got into the ETF business in July, 2002 which was about nine years after the first domestic equity ETF was launched. Commodity funds came along shortly thereafter with a whole bunch of new things to learn. How many years were you an investor before you knew what contango was?
Your life will evolve over the next ten years as will your investing needs. The common arc has been growth in the accumulation phase and then “conservative” income streams in retirement. There is pressure on this idea from what are now typically insufficient yields in many sectors of the bond market.
If you engage the fixed income market to offset equity market volatility then I think you need to consider different tools to meet that objective and offer a better chance at a positive return. If you engage the fixed income market for the, um, income then I think you need to consider different tools to meet that objective.
The ETF industry is of course very motivated to address these issues whether it is alternative strategies, funds that hedge interest rates and others yet to come.
Where we talked about kicking back with your 60/40 being less likely to get the job done in a recent post investors should be very motivated to adapt along with the market and seek out their own solution.
To be clear, I am not talking about turning 60/40 inside out or trying to create your own endowment style portfolio but seek out ways to bump up the yield in the equity portion of your portfolio and substitute small parts of your fixed income portfolio with alternatives. And again, all fund providers offer tools for these objectives.
The solution is available but it requires an active engagement to find it.