FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
The Great Fallacy Of Target Date Funds (CFA Institute)
Investors should look at more than just their age when determining their risk tolerance. "The great fallacy of target-date funds is that age is used as a shorthand for the level of investment risk an individual should take," writes Michael Lipper at the CFA Institute. Target date funds are funds that rebalance assets based on a future date, and typically get more conservative closer to retirement.
"There are many other measures to take into account, some more important than others, like assets including intangibles, liabilities including contingencies, and mental and physical health." With that in mind Lipper suggests "some attention should be paid to time horizons beyond a century, possibly 120 years."
LARRY FINK: Hedge Funds Will Consolidate But That's Not Problematic (Bloomberg TV)
Hedge funds returned an average of 7.4% in 2013, compared to the S&P 500 which was up 30%. BlackRock's Larry Fink told Bloomberg TV's Erik Schatzker and Stephanie Ruhle that he thinks hedge fund consolidation will continue.
"There's already been consolidation. And they're going to continue to do it, but you're seeing some very successful hedge funds doing quite well. And you're seeing some of the other ones that are starting to struggle. So I don't find that to be a problem. That's the evolution in the marketplace. Winners take on more share. You see that in the mutual fund business. You're seeing that in the entire investment management business. I think the larger successful organizations are going to pick up more and more market share. And so I don't find that problematic."
FINRA Rejigs Plan For Broker Disclosure Link (Reuters)
The Financial Industry Regulatory Authority (FINRA) is presenting a new plan to its board next week for a disclosure link on brokers websites, reports Suzanne Barlyn at Reuters. Earlier this year, FINRA approached the SEC on a version of the plan that would also required firms to post these links prominently on their social media pages. It rescinded the application after some brokerage industry groups wrote to the SEC saying that it would be hard to do so as many limit the text or format in which these links can be provided.
The History Of 10% Stock Market Sell-Offs (Deutsche Bank)
After stellar returns in 2013, stock markets have been hurting this year. Many are wondering if this means we're slated for a correction. In a December note, Deutsche Bank's David Bianco wrote that it's possible to go four years without a correction.
"S&P 500 corrections of 10% or more, including those that turned into bear markets, occur nearly every 1.5 years (357 trading days) on average since 1957. The last correction began over two years ago (550 trading days) in the summer of 2011, but that correction was severe and nearly a bear market with a 19% decline. But more importantly, there is enormous variation around the mean of trading days between corrections. The STD is higher than the mean, thus a correction is not more than 80% likely, based on precedent since 1957, until 750 days from the last correction. Moreover, corrections are less frequent the past 25 years vs. the past 50+ years. From 1990 to 1997 the S&P avoided a 10%+ decline (1994 was close), also from April 2003 to September 2007. Thus 4 years without a correction is possible, especially if earnings climb and inflation and interest rates stay low vs. history, but a higher PE raises the risk."
3 Simple LinkedIn Practices That Firms Need To Focus On (Investment News)
Financial advisory firms are beginning to grow their social media presence. Caitlin Zucal at Investment News thinks there are three easy things that firms can do to make the most of LinkedIn.
1. Create a full profile — This includes using professional photos, adding skills, using "industry-focused keywords in your tagline," and keeping your profile current.
2. Focus on the quality of connections — Focus on quality over quantity and remember to "write something personal to the individual you want to connect with instead of sending the standardized LinkedIn message."
3. Stay active — Post a few interesting piece a day or join a conversation in a relevant group.