Here are ways to adjust your portfolio as some experts predict a soft landing for the economy

Personal finance

Morsa Images | E+ | Getty Images

Some experts have reversed recession predictions and embraced a soft landing for the economy as the Federal Reserve continues to fight inflation.

The rosier outlook is prompting talks between advisors and their clients, including possible shifts for investment portfolios.

“A potential recession has been in the news since probably mid- to late 2022,” said certified financial planner Barry Glassman, founder and president of Glassman Wealth Services in McLean, Virginia.

“The fact that we may see a soft landing or avoid a recession altogether doesn’t mean people should change their strategy of building up a safety net and hopefully recession-proofing their portfolio,” added Glassman, who is also a member of CNBC’s FA Council.

‘Investors are finally getting paid to wait’

Amid rising interest rates, several competitive options for cash have emerged, such as high-yield savings accounts, certificates of deposit, Treasury bills and money market funds — all paying significantly more than two years ago. 

“We’re now getting paid to have money on the sidelines,” said Glassman, who recommends short-term assets for emergency savings and future investing opportunities.

We’re now getting paid to have money on the sidelines.
Barry Glassman
Founder and president of Glassman Wealth Services

Whether you’re a saver or simply a more conservative investor, “it’s an amazing time to set money aide,” he said. “Investors are finally getting paid to wait.”

Increase bond allocations before interest rate cuts

As the Federal Reserve weighs an end to its rate-hiking cycle, some advisors are adjusting their clients’ bond allocations. 

With expectations of future interest rate cuts, Atlanta-based CFP Ted Jenkin, founder of oXYGen Financial, has started shifting more money into bonds.  

Typically, market interest rates and bond values move in opposite directions. That means bond values will rise in 2024 if the Fed cuts interest rates.

With possible interest cuts on the horizon, bonds are poised for a stronger performance, according to Jenkin, who is also a member of CNBC’s FA Council.

“We believe them to be in favor for 2024,” he said.

Consider extending bond duration

When building a bond portfolio, advisors also consider so-called duration, which measures a bond’s sensitivity to interest rate changes. Expressed in years, duration factors in the coupon, time to maturity and yield paid through the term. 

Douglas Boneparth, a CFP and president of Bone Fide Wealth in New York, said his team shortened bond duration before the Fed signaled plans to raise interest rates.

However, with future interest rate cuts expected, they’ve shifted duration back to intermediate-term allocations, said Boneparth, a member of CNBC’s FA Council.

Jenkin has also started “chipping back in the other direction” with bond duration. “If there’s any cut in interest rates by the Fed next year, those long term bonds should be even more favored in terms of their overall rate of return,” he said.

Articles You May Like

Which is better — ChatGPT or a travel agent? Here’s our pick
This account is like an ‘extra strength’ Roth IRA, advisor says. Here’s when to use it
Pay secrecy norms have ‘simply lost their teeth,’ say experts. Here’s why
Talking Tax Reform: Post-Wayfair Remote Sales Tax Reforms
How Are Electric Vehicles Taxed in Your State?