Active financial advice is the new reality

We see active financial advice as the new reality. Not robo. Not passive. But active! 

Today, we can see an emerging problem with the “do it yourself,” “set it and forget it,” “autopilot” approach – a problem that can be most clearly illustrated using target date funds. 

The industry had $2.8 trillion in assets in 2020, reports Pensions & Investments citing Morningstar. As such, the industry houses one of the largest automated retirement approaches available today. 

Target date funds come with different end dates (e.g. 2030, 2040), glide paths and an automated shift of stock and bond allocations. Fund companies popularized automating allocations over time to provide a “safer” investment as a client ages. For example, a target date fund with a 2040 end date may today hold an 80/20 stock-to-bond mix, but could eventually end with a 30/70 stock-to-bond mix during the early years of the average person’s three-decade retirement. The original thesis presumably was altruistic: how to help millions of retirees avoid making bad investment decisions, as evidenced in the repeated findings of underperformance by the average investor in DALBAR’s annual Qualitative Analysis of Investor Behavior study. 

However, the challenge is that market environments can change radically over the long lives of these products. What once seemed like a good solution can become stale, perhaps even harmful. Interest rates are hovering around historic lows, while inflation rates may be moving up. Such a combination would result in projected, inflation-adjusted rates of return for bonds that would be anemic. And yet these products are designed – and contractually obligated – to drive more and more of a client’s assets into global fixed-income markets. Simple math would suggest that with this set of circumstances clients may run out of money quicker — perhaps much quicker — than they realize. 

That’s why Horizon Investments views active financial advice as the new reality. That advice, we believe, must include reviewing products like target date funds, communicating with clients about their asset mix, assessing the current investment environment and providing appropriate adjustments. In other words, financial advisors can help take their clients off autopilot. 

That’s all the more true, we think, in light of the potential macroeconomic changes highlighted in our main Q2 Focus article. Whether it’s inflation, blockchain, demographics or the life events we all experience, it’s active advice that can navigate a dynamic world. 

 

 

1Target-date funds see assets climb in 2020 despite pandemic – Morningstar, Pensions & Investments, March 18, 2021 

2Investors Reacted to Market Crisis in Unprecedented Fashion – Dalbar, 2021


The commentary in this report is not a complete analysis of every material fact in respect to any company, industry, or security. The opinions expressed here are not investment recommendations, but rather opinions that reflect the judgment of Horizon as of the date of the report and are subject to change without notice. This information is for educational use only and should not be considered financial advice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is no guarantee of future results. Horizon Investments does not provide tax advice, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions give rise to substantial risk and are not suitable for all investors. The investments recommended by Horizon Investments are not guaranteed. There can be economic times where all investments are unfavorable and depreciate in value. Clients may lose money. 

We do not intend and will not endeavor to provide notice if and when our opinions or actions change. Horizon Investments is not soliciting any action based on this document. This document does not constitute an offer to sell or a solicitation of an offer to buy any security or product and may not be relied upon in connection with the purchase or sale of any security or service. 

The awards shown above are not indicative of future performance and may not be representative of any one client’s experience because they reflect an average of all, or a sample of all, the experiences of an adviser’s clients. Please see important additional information at horizoninvestments.com/awards 

Visuals included are for illustrative purposes only and should not be considered a guarantee of success or a certain level of performance. 

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. It should not be assumed that any security transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein. Contact us for a comprehensive list of securities recommended for strategies described herein. 

RISK ASSIST® is NOT A GUARANTEE against loss or declines in the value of your portfolio; it is an investment strategy that supplements a more traditional strategy that supplements a more traditional strategy by periodically investing assets in a portfolio of securities with fixed-income exposure based on Horizon Investments’ view of market conditions. 

Asset allocation models are subject to general market risk and risks related to currency fluctuations and economic conditions. Future returns are not guaranteed, and a loss of original capital may occur. Accounts with RISK ASSIST® are not fully protected against all loss, and when the portfolios are exposed to fixed-income securities they may underperform accounts that do not have the RISK ASSIST® feature. There may be economic times where all investments are unfavorable and depreciate in value. Clients may lose money. 

The Real Spend® retirement income strategy is NOT A GUARANTEE against market loss and there is no guarantee that the Real Spend® strategy chosen by an investor will lead to successful investment outcomes for part of, or for the entirety of an investor’s retirement. This strategy is not an insurance product with payments guaranteed. It is a strategy that invests in marketable securities, any of which will fluctuate in value. Before investing, consider the investment objectives, risks, charges, and expenses of the strategy. Keep in mind investing involves risk. The value of an investment will fluctuate over time and will gain or lose money. 

© 2021 Horizon Investments, LLC. Horizon Investments, the Horizon H, Gain Protect Spend, Risk Assist and Real Spend are all registered trademarks of Horizon Investments, LLC. 

NOT A DEPOSIT | NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY 

NOT GUARANTEED | CLIENTS MAY LOSE MONEY | PAST PERFORMANCE NOT INDICATIVE OF FUTURE RESULTS 

HIM042021 

Share on twitter
Share on linkedin
Share on facebook
Share on email
You are now leaving this website to go to HorizonMutualFunds.com

Connect product to planning with the Horizon technology suite. Goals-based strategies, cutting edge software.

Explore mutual funds managed by Horizon Investments.