Written by Jeff Mount
FAIRFIELD, CONN. (PRWEB) APRIL 27, 2020
As COVID-19 takes an enormous economic toll on society, financial advisors and investors tackle the role bond funds hold in an investment portfolio. Real Intelligence, LLC’s Jeff Mount explains why new approaches and tools are vital during this time for creating customized approaches for each investment portfolio when it comes to bonds, financial planning, and risk management.
Fueled by the global crisis, recent projections show a second quarter GDP fall of 34% annualized—more than any previous quarterly contraction in U.S. history.(1) According to Jeff Mount, disruptive financial advisor trainer and the CEO of Real Intelligence, he says the pandemic-induced market volatility is driving investors to either sell bond mutual funds for immediate liquidity or buy them based on present strength without having a long-term strategy—both of which may point to flawed risk management. “Crisis moments spur investors to sell bond funds for liquidity, which forces portfolio managers to sell the bonds at a loss to raise cash for exiting investors. Since there is no appetite for riskier bonds, the portfolio manager has to sell the highest quality bonds. The remaining investors in the fund are left with the riskiest bonds,” Mount says. “Owning individual bonds outright (rather than in a fund) can limit downside exposure due to the absence of selling pressure by other fund holders, but these investors will have the same challenges trying to sell bonds when demand dries up.”
With steep losses in financial markets across various industries all over the world, many investors are enticed by the idea of instant access to liquid assets. While recent global stock market drops have been detrimental, Treasury bonds have surprisingly gained value, due to collapsing yields.(2) But even as tentative signs of a flattening coronavirus curve start to surface, there is no way of really knowing what’s to come for both the market and investors—including for bonds.
This financial uncertainty is apparent as corporate entities across retail issue new bonds to deal with mounting debts caused by the COVID-19 fallout. At the same time, the Federal Reserve announced new corporate bond and loan measures to keep credit markets functioning due to pandemic economic volatility.(3) Additionally, some global entities have started issuing social bonds in an effort to funnel capital into sectors and communities severely impacted by the viral outbreak.(4) The popularity of inflation-linked bonds as a recovery asset for money managers during the current supply chain upheaval and stimulus infusions might seem tempting, but the reality is economic impacts still pose unknown threats.(5)
Better Financial Planning Requires Better Tools
While portfolio diversification is the best approach during risky times, maintaining the right balance of stocks and bonds is often a difficult feat for many investors.(6) And those without personal advisors may find themselves even more vulnerable in being solely responsible for monitoring and making right portfolio investment decisions.
According to Mount, advisors and investors need some form of support for guiding these decisions based on the need for liquidity as the purpose-based portfolio’s distribution date nears. For instance, Real Intelligence’s “Dynamic Map” app scheduled to release next month begins with a unique financial planning calculator offering methods designed to reduce investment-induced stress—especially when magnified by an ongoing pandemic. Financial planning tools, resources, and methods can offer clarity and help to keep investors financially grounded.
