Dean Harman<\/h4>\n
Dean Harman, managing director, Harman Wealth Management:<\/strong> This is terrible for people who are on a tighter budget and a fixed income. From a lifestyle standpoint, it\u2019s kind of like what can you do to cut your spending?\u00a0<\/p>\n The retirement thing is what\u2019s really scary. During Covid, lots of people left the labor force who otherwise might have retired another year or two from now. They figured, \u201cI\u2019ve got enough savings, I\u2019m done.\u201d Now interest rates are way up and they\u2019re paying more for stuff. That\u2019s devastating to their financial plan, especially on the front end of retirement.\u00a0<\/p>\n We had a retired client in yesterday, and one of our advisors was telling him that he needed to continue doing consulting work for another few years to offset some of this pain. You can\u2019t say that to a 79-year-old, but it might be the right advice for a 58-year-old.<\/p>\n Carlos Lowell, financial advisor, Morgan Stanley: <\/strong>For most people, the investment losses and the changes in interest rates are more psychological effects. Families that hold most of their assets in retirement plans and things like that tend to get frustrated when they look at their statements, but it doesn\u2019t really impact their day to day. That doesn\u2019t mean it\u2019s any less real, but it does mean you\u2019ve got to practice patience. If you have a plan and trust that it\u2019s the right plan, now\u2019s the time to stick to it.\u00a0<\/p>\n For families who need to pull relatively small amounts from their portfolios, I am pulling more from fixed income than equity. That might be a little counterintuitive, but historically in a recovery you see a bigger raise in the equity markets than in the fixed-income markets. So it actually gives that piece of your portfolio a better shot to help you.\u00a0<\/p>\n A collection of our top stories from the day, delivered every evening. Stay on top of the latest advisor news, community commentary, and opinion from industry leaders. <\/p>\n<\/div>\n<\/div>\n<\/div>\n I\u2019ve also been telling clients, \u201cHey, you may want to put off the projects you\u2019re thinking about, whether that\u2019s a remodel or buying a second home. Let\u2019s give it a little bit of time and wait until things stabilize a little bit more.\u201d Rising interest rates are obviously impacting variable-rate loans, and we expect rates to continue to rise for the next three Fed meetings at a minimum. So, from an immediate standpoint, we research what kind of fixed-rate alternatives there are.<\/p>\n Jennifer Cute, investment advisor, TD Wealth Private Client Group: <\/strong>The key in this environment is to make sure you\u2019re insulating yourself against that rising interest burden by making your assets more productive on the income side. One of the most effective tools in 2022, particularly for fixed-income investors, has been shifting your portfolio exposure toward securities like floating-rate bonds and floating-rate loans.\u00a0<\/p>\n There is a reasonably good universe of funds that give you that access to floating-rate, fixed-income securities. As the Fed has hiked rates, the income produced by those funds has gone up in tandem. And where most fixed-income instruments have been deeply negative over the past 12 months, floating-rate debt and floating rate securities have had a flat to positive investment return on top of the additional income. On the equity side, you can shift your exposure toward high-dividend payers like energy utilities or financials that may even have a little earnings benefit from rising rates.<\/p>\n Michael Policar, founder, NGP Financial Planning: <\/strong>Ideally, money that was going to be needed for debt service wasn\u2019t invested in risk assets; that\u2019s just prudent asset allocation. But when it comes to investments being down and the cost of debt being higher, there are certain situations where I would sell investments at a loss to pay off debt, and certain instances where I would not.\u00a0<\/p>\n For example, I\u2019d probably take an investment loss to pay off credit card debt. I believe the most recent average rate on cards was around 21%. You might hope that if your investments are down 20% they could come back 20%. But that debt is compounding for sure at 20%. So I\u2019ll take the investment loss to knock that debt out. But if it\u2019s my mortgage, and the rate\u2019s at let\u2019s say 6% or 6.5%, I\u2019m less likely to take an investment loss to pay that off.<\/p>\n Jonathan Shenkman, financial advisor and portfolio manager, Shenkman Wealth Management:<\/strong> The most important factor in determining how to best advise a client is classifying the type of debt with which they are burdened. Not all debt is equal. For example, credit card debt is the cancer of personal finance. The average credit card interest rate is nearly 17%, and climbing, so debt can very quickly grow out of control and become insurmountable. In such a situation, I would advise clients to sell their investments, even at a loss, in order to pay down their credit card debt in full.<\/p>\n There are other types of debt that, while still not great, are less bad. One example is a variable-rate loan. The solution in such a situation depends on many factors, including when the rate is scheduled to rise, the purpose of the loan and the client\u2019s projected cash flow to pay down this debt. For a borrower with an investment property whose mortgage is set to climb higher, I would evaluate the property\u2019s monthly cash flows to determine if it is possible to keep the investment profitable for a few years until the market dynamics change or the market goes up in value. Running to sell losing investments may or may not be optimal depending on the situation.<\/p>\n Then there are those clients with so-called good debt, who are temporarily having difficulty making their debt payments because business has slowed due to the economic environment. Take a homeowner who refinanced their mortgage in the past couple of years to a 15-year loan at a sub-3% interest rate. I would advise this client to continue to maintain their loan at a historically low interest rate and find other nondiscretionary expenses to cut, to avoid selling stocks in a down market.<\/p>\n Matthew Michaels, co-chief investment officer, Fidelis Capital Partners: <\/strong>We believe that the current environment is highly uncertain. And when you\u2019re in an uncertain environment and you expect volatility, you try to reduce risk. So in a portfolio, we try to increase cash, we try to move to higher quality assets, we try to remove risk. And when you have leverage in a portfolio, by definition, that\u2019s additional risk: You\u2019re going to exaggerate both your gains and your losses.\u00a0<\/p>\n So if we\u2019re reducing risk in a portfolio, we\u2019d recommend reducing leverage as well. How much? It\u2019s a little bit different for each client. We\u2019ve been trimming assets and paying down debt when we\u2019ve had positive weeks like the one we recently had.\u00a0<\/p>\n A general rule of thumb in a market like this is to look for opportunities to either pay down about half of that variable rate debt, or at a minimum, keep your outflow of cash to pay that debt about equal by trimming the debt.\u00a0<\/p>\n Editor\u2019s Note: Answers have been edited for length and clarity.<\/em>\u00a0<\/p>\n Write to advisor.editors@barrons.com<\/a><\/p>\n<\/p><\/div>\n\n Not long ago, it seemed that the era of low interest rates and rising asset prices might never end. It\u2019s easy to understand why countless Americans were comfortable accumulating debt, and why they prioritized playing the markets over repaying that debt. This year, of course, has been a rude awakening, with rising interest rates and …<\/p>\n","protected":false},"author":1,"featured_media":36151,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36150"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=36150"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36150\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/36151"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=36150"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=36150"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=36150"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n Photography by Tara Flannery
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Carlos Lowell<\/h4>\n
\n Courtesy of May Bagnell
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\nAdvisor Newsletter<\/h4>\n<\/p>\n
Advisor Daily <\/h5>\n
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Jennifer Cute<\/h4>\n
\n Courtesy of TD Wealth
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Michael Policar, NGP Financial Planning<\/h4>\n<\/figcaption><\/figure>\n<\/p><\/div>\n
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Jonathan Shenkman<\/h4>\n
\n Photography by Lisa Houlgrave
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Matt Michaels<\/h4>\n
\n Courtesy of Fidelis Capital
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