Market volatility increases
As we head into summer we’re seeing an increase in market volatility. The technology sector, in particular, has noticeably pulled back. This is certainly not surprising, given that tech stocks have risen dramatically since the middle of April. There is a strong argument that technology share prices have gone up too far too fast. It’s likely that investors are taking some profits and looking to reallocate funds to areas of the market that haven’t participated in the recent market rally, especially energy and financial stocks. Dividend shares have also done quite well. What we’re seeing is a normal period of consolidation and rotation into other areas of the market. That’s why it’s so important to have a properly diversified portfolio.
Another area of investor’s focus will be on the Federal Reserve meeting this week, where they will most likely raise rates again. The markets expect this, so the focus will be on their post meeting statements about policy for the rest of this year. We’ll probably see another rate hike as long as the economic data continues to be positive. In addition, there will be commentary on the speed at which they will unwind their balance sheet accumulated since the financial crisis. Basically, we’re seeing a policy that is still very accommodative to economic growth going forward.
On an industry front that may or may not affect your relationship with your financial advisor. The long awaited fiduciary rule has finally been put into place. Although the rule implementation is far from complete it’s a starting point for better practices and advice transparency. Our hope is more people knowing of the standard will seek out financial advice and literacy from a professional instead of winging it or ignoring retirement all together.
While it won’t be fully implemented until January of 2018, and it could be modified to some extent before then, it is still very significant for investors as it applies to retirement accounts. Fiduciaries must put the interests of their clients first and usually charge a fee that is a percentage of their client’s assets. They are usually referred to as Investment Advisors. Broker’s, on the other hand, only have to show that their recommendations are suitable. They also charge commissions for the investments they recommend.
The discussion here revolves around conflicts of interest. With brokers who charge a commission, there is always the possibility that their recommendations are influenced by the level of commission associated with the product. If you’re working with an Investment Advisor who is a Fiduciary that charges a flat fee, you can have confidence that his or her investment suggestions are conflict of interest free. There is no incentive for the Advisory to choose one investment over another for your portfolio. For this reason, it is in your interest for your Advisory to be a Fiduciary.
D. Scott Peterson is CEO and head investment manager for Peterson Wealth Management may be reached at 775-673-1100/775-423-8007 or at Petersonwm.com.