Financial advisors who specialize in fixed-income strategies are always on a mission to educate. For a variety of reasons, everyday investors are likely to know more about mutual funds and other stock market-based investment options than they are about fixed-income alternatives. Consequently, many investors may be under the mistaken impression that any investment option with the potential to generate reasonable returns must also carry a significant risk of loss when the stock market plummets.
While no investment is entirely risk free, one of the primary goals of fixed-income based strategies is to mitigate the risk of major losses by reducing a portfolio’s exposure to the stock market. The other main goal is to create a portfolio that generates dependable and sufficient retirement income through interest and dividends and provides opportunities for growth through strategic reinvestment. In today’s world of global economic uncertainty, volatile financial markets, and low interest rates, one could argue that advisors in the best position to achieve these goals are fixed-income specialists who also have the resources and expertise to actively manage their clients’ accounts.
Sound Income Strategies (SIS) is a progressive Registered Investment Advisory firm specializing in actively managed fixed-income securities, and gears its practices toward investors over 50.
A lot of firms focus on equities because that’s their specialty, so that’s what gets most of the attention in the financial media or when a local financial advisor does an educational workshop or seminar. As a result, that’s usually what a lot of people end up being highly invested in—usually through mutual funds, exchange-traded funds (ETFs), and blue-chip common stocks.
Let's start with why they differ, which is that they specialize in working with clients who are either already retired or close to retirement. Their highest priority at that stage of life is no longer accumulating more wealth, but ensuring that the assets they’ve already accumulated are protected against significant loss—and, as a company, Sound Income Strategies (SIS) agrees that that should be their top priority. Generally speaking, they don’t want a lot of volatility in their portfolios, and the main goal of SIS is to protect their savings as much as possible from being vulnerable to volatility and the kinds of devastating downturns the markets experienced from 2000 to 2003, and again from 2007 to 2009.
Most SIS portfolios are weighted to individual bonds. SIS prefers individual bonds over bond mutual funds because our clients hire us and SIS to manage risk. When interest rates go up, bond prices go down. If SIS has no control over the securities that go into a bond fund, then how can they manage risk the way our clients hired us to? The answer is: They can’t. So, by retaining the ability to choose the individual securities in my client’s accounts, SIS can manage things like maturity dates and higher coupons to provide a higher level of service.
A mutual fund manager does not know the financial situation of each of their individual clients, and their interests are not necessarily aligned. At Sound Income Strategies, that is never the case.
Plus, the income generated by this investment doesn’t change. It is fixed – just as the name implies – which is extremely important to retirees and near-retirees who want to know they’ll have dependable income to meet their retirement goals. That’s an important safety factor as well because, often, a bond mutual fund portfolio manager will buy a lot of risky stuff to try to get a pop in the yield, but that’s not the approach SIS uses to meet client objectives.
For example, from 2000 to the end of 2015, the S&P 500 index averaged 3.25%, where the bond index averaged 5.3%. That surprises a lot of people because some advisors who specialize in stock-based strategies try to give the impression that bonds are boring and never earn any money. But, sometimes – to use the old adage – the tortoise does win the race!
It really does, which is why the guiding principle that applies to anyone near retirement looking to reduce their portfolio risk is – don’t try this at home. Stock markets trade on an exchange where everyone in the world gets to see the same price. The bond market does not work that way, and that is why actively managed fixed income isn’t something that can be done on autopilot, and it isn’t something most do-it-yourselfers should try.
Just as you would hire a coach to improve your golf swing or tennis game, an investing coach can help you maximize the benefits from your investment strategy. A coach can help you make the prudent decisions about how much volatility and what types of risk you want to incorporate into your portfolio. He helps you to distinguish prudent from imprudent risk. A good coach also works with you on what you really want your money to do in the future. At Wealthwise Technologies, our advisors act as fiduciaries and make independent recommendations. All recommendations are based on what is in your best interest.