Where financial advisors see opportunity

Shoppers at a Chicago grocery store on Aug. 9, 2023.

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Inflation has continued to take a bite out of Americans’ wallets in 2023. But onetime predictions that a recession is on the horizon are instead now turning into forecasts of a soft landing for the U.S. economy.

For top financial advisors who landed on the CNBC FA 100 list this year, the challenge is translating that economic forecast for clients and coming up with winning investment strategies.

“This is the million-dollar question on where we’re going to end up,” said Brian Spinelli, co-chief investment officer at Halbert Hargrove Global Advisors in Long Beach, California, which is No. 8 on this year’s list.

Investors will typically go through many investment cycles, and they’re not necessarily going to time themselves with stocks, bonds and other areas of a portfolio, he said.

“In the short run, you could have the stock market doing really well,” Spinelli said. “And you could also have the economy cooling.”

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As inflation climbed to 40-year highs and the Federal Reserve has repeatedly raised interest rates to tamp price growth down, other financial advisors are also on high alert for a downturn.

“Generally when you have interest rates go up this fast, this quickly and the money supply contract this fast and this much, we see a slowdown usually 18 months or so later,” said David Rea, president of Salem Investment Counselors in Winston-Salem, North Carolina, which is ranked No. 27 on this year’s CNBC FA 100 list.

Consequently, there may be a slowdown, which Rea said is already showing up in forward-looking economic data.

Regardless of whether that turns into a full-blown recession or a milder soft landing, experts say investors have reason to be optimistic about market opportunities now.

A long-term time horizon wins

If the economy sinks, and the market does with it, those blue-chip names may take some hits, Rea said.

But Rea tells clients those stocks will likely meaningfully recover in three to five years.

“We talk a lot about a long-term time horizon,” he said.

At Halbert Hargrove, Spinelli said he has a tilt toward value — companies with low prices relative to earnings and growth potential — rather than big blue-chip names.

The fear is those big-name companies are “priced to perfection,” he said, and may suffer with any disappointments in performance.

“We also have to be careful and be humble that you can’t time markets,” Spinelli said. “You don’t know how long they’re going to run.”

Safer investments looking up

As economic conditions shift, experts say that has brought new opportunities in fixed income.

“Clients have been starved for yield for so long now,” Spinelli said. “It’s time they come back that they can actually earn something on safer investments now.”

Halbert Hargrove has been adding investments in government-backed mortgages to the fixed income side of portfolios, which offer safer yields and less volatility than Treasuries, according to Spinelli.

Meanwhile, Salem is looking toward opportunities in safe municipal bonds, according to Rea. Munis offer tax advantages for clients because they are generally exempt from federal taxes.

Returns on cash are also the best they have been since before the 2008 financial crisis, with interest rates of 5% or more available on some online savings accounts or money market funds.

Having 12 months’ of expenses set aside in cash can help prevent investors from having to sell their investments in the market in a pinch, Spinelli said. But come tax time next year, investors will have to pay taxes on the interest they earned on that cash.

“It’s not a guarantee that you get to keep all of that,” Spinelli said.

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