A few of our clients have requested that we expand on our June post about rising rates. In particular, they’ve asked: “why not switch entirely to bonds with shorter maturity, in order to better protect against rising rates?” We see multiple reasons for not doing so:
Broad equity indexes were essentially flat in the second quarter; the S&P 500 Index (large caps), the Russell 2000 Index (small caps), and the MSCI EAFE Index (international stocks) all advanced less than 1%.
For some time now, most market observers (ourselves included) have expected that the Federal Reserve would eventually raise interest rates from their historically low levels.
Speaking at an AARP event in late February, President Obama proposed tougher standards for brokers and other financial “advisors” who oversee retirement accounts such as IRAs and 401ks. Specifically, the White House wants brokers–whose investment recommendations are currently subject to a suitability standard–to instead be held to a more rigorous fiduciary standard.
Despite some domestic economic headwinds, Euro-zone tension following January Greek elections, and expectations that the US Federal Reserve (the ‘Fed’) is ready to start raising short-term rates, the US stock market as measured by the S&P 500 managed to eke out a small 1% gain during this year’s first quarter.
Last October, we weighed the merits of combining both active and passive strategies in our asset allocation recommendations. Subsequently, the fund research firm Lipper estimated that in 2014, only 15% of active large cap equity managers outperformed the S&P 500.