Investors are often wooed by how big institutional players, endowments, and pension plans play the market. Retail investors hear about the massive sums of money the large participants allocate and the unique asset classes they have access to and often want some of that action for themselves.
Tempting as it is for ordinary investors to try to emulate what the BlackRocks and Warren Buffetts of the world are doing, it’s an incredibly difficult endeavor, and one advisors should steer clients away from. For advisors, a key area to focus on is the time horizon. Where an endowment or pension plan can invest without regard for time, no individual investor has that luxury.
“But there is one key difference: Pensions and endowments are perpetual. That is, their investment time horizon is ‘forever’,” reports Robert Isbitts for U.S. News & World Report. “With the exception of only the most well-heeled families, retail investors are more focused on getting to and through retirement themselves, one generation at a time.”
For clients nearing retirement or for those already there, many of the tactics used by professional investors and many of the asset classes they prowl aren’t applicable for ordinary investors. Owing to the aforementioned luxury of forever, big institutional players can take some risks here and there. On the other hand, advisors should be chatting with retirees and those close to retirement about avenues for dialing back risk.
That doesn’t mean all retirees need portfolios to be chock-full of boring, bland Treasuries and municipal bonds. There’s still room for equity income and some credit risk and those are the type of sound fundamental strategies advisors should help clients focus on.
At the end of the day, smart advisors’ cookie-cutter portfolios won’t get the job done for clients, but leading clients to believe institutional-like access and returns are readily available is disingenuous. By focusing on fundamentals and attainable strategies and returns, advisors can keep clients’ expectations and priorities in line.
One last piece of advice:
“Clients have individual dreams and goals. Treat them that way and you will be rewarded, especially when you are able to help them confront both traditional and new types of investing risk,” adds U.S. News.
For more on income strategies, visit our Retirement Income Channel.