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Tuesday, 23 March 2021 17:55

The Best Model Portfolios Right Now

(New York)

Model portfolios provided by third parties have become increasingly popular for advisors, but separating the best from the rest is no easy feat. To help out advisors, Morningstar now has rankings and guides (see them here). Here are five of the top picks from Morningstar: BlackRock Target Allocation ETF, Vanguard CORE, American Funds Growth & Income, American Funds Tax Aware Growth & Income, BlackRock Multi-Asset Income. Other interesting options include the State Street Strategic Asset Allocation and T.Rowe Price Active.

FINSUM: The world of model portfolios has been proliferating enough that scoring and guidance is very useful (just think how hard ETF selection would be without screeners!).

(New York)

Infrastructure investment is a fascinating area that can have good yields and strong returns. However, advisors should be forgiven if they feel like the hype that has surrounded it over the last five years has never matched reality. Politicians have been talking about a new golden age of US infrastructure investment since the Obama years, yet almost nothing has materialized. That seems like it will change under Biden, and the whole sector looks poised to benefit. According to Goldman Sachs, the big winners look likely to be materials, construction, and machinery stocks.

FINSUM: Frontrunning this infrastructure package could be a good idea. As soon as there is an indication that it may become a reality, there will likely be a work-from-home-like jump in prices.

Tuesday, 23 March 2021 17:52

Why Junk Bonds are Hot Despite Low Yields

(New York)

Until every recently (and even now), junk bond yields were historically low. This was not a surprise since Treasuries were also at historic lows. But the whole situation begs an important question—why are junk bonds so popular when their yields are so low? It seems like an abundance of risk with little return. The answer to the question is that “there is no alternative”. Many fund managers have mandates to invest in a minimum holding of bonds, no matter what their yields. Therefore, when that cash needs to find a home in fixed income, it naturally finds its way towards the highest-yielding bonds, even if those might be quite risky. This helps explains the huge decline in yields since March 2020 (from an average of 12% yield to under 4% in February).

FINSUM: “There is no alternative” (TINA), is the same explanation given for the big rise in equities since after the Financial Crisis, and even since the beginning of the pandemic. Frankly, the argument seems to hold water.

Tuesday, 23 March 2021 17:51

Do Annuities Work for All Clients?

(New York)

Annuities have seen major growth in popularity since the pandemic began—a 40% tumble in stock prices when a huge portion of Americans are about to retire will do that. Annuities sales have risen, and advisors—especially those new to selling them—may be asking themselves if the products are good fit for all clients. The answer is a resounding “maybe”. The reality is that almost all portfolios can benefit from a portion being put in a product with guaranteed lifetime income. However, the degree of exposure depends hugely on the client’s wealth, spending habits, self-control (as it relates to withdrawing from investment accounts), and even personality. According to the head of a leading firm in the annuities space, “I think that, in general, an annuity makes sense for most people. The only true way to guarantee lifetime income is through an annuity contract with an insurance company”.

FINSUM: For the wealthy and those with great self-control an annuity is an excellent hedge against big losses. For the rest, it can be a critical component that preserves lifetime income.


Many advisors may not have realized it yet, but the new COVID relief package passed by Congress recently has many benefits for upper middle class Americans and even those in the mass affluent category (which constitute tens of millions of clients for advisors). Other than the $1,400 checks, there are also two lesser known details advisors need to be aware of. If a client qualified for a check last time, but did not get one, they can claim the money they would have been entitled to as a credit against their taxes. It is a bottom line deduction that comes directly out of taxes owed. If no taxes are owed, they should get the credit as a refund check Additionally, the package offers enhanced child tax credits. This is $3,600 per child under 6 years old, and $3,000 per child between 6 and under 18 years old. The latter used to be for those under 17, so this helps those with 17 year-old children. Finally, those who have student loans that will be forgiven will not have to pay taxes on the forgiven amounts, which is a massive benefit for those who qualify.

FINSUM: There is a lot more to this package than many realize. Advisors should take a deeper dive to see what applies to their clients.

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