The top conversations on APViewpoint last week were started by Larry Swedroe and Michael Edesess. They generated thoughtful discussion with wide ranging opinion on the virtues of bond laddering, and the academic failure to understand rebalancing.
Larry Swedroe’s The Virtues of Bond Laddering received 16 comments from advisors about his recent article on why advisors should use bond laddering instead of equity, mutual fund, or bond fund strategies. Some advisors agreed with Swedroe’s argument, explaining that they integrate bond ladder strategies into their practice to construct client portfolios that provide target cash flows while sidestepping interest rate risk and sequence risk. They added that laddered low-risk individual bonds also have mental accounting benefits because they allow clients to “clearly delineate the function of the bonds in their portfolio (paycheck) and stocks (long term growth).” However, others argued that funds provide superior diversification, and that they allow advisors to have greater control over risk and duration. They suggested that ETFs like iShares iBonds (Ticker IBDJ) or Guggenheim Bulletshares (Ticker BSCG) are low-cost alternatives to bond laddering, and that they are more appropriate “for smaller portfolios where it might be expensive or difficult to fill the bond allocation using individual bonds.” In response, some suggested that small investors consider buying individual CDs which have no credit risk and can be purchased in small amounts.
Michael Edesess’ The Academic Failure to Understand Rebalancing provoked 30 comments as it continued into its second week of activity. Members discussed Edesess’ recent article on how imperfect mathematics have led advisors to overestimate the benefits of rebalancing. Members widely agreed that it is incorrect to characterize rebalancing as a tool to generate alpha, and many supported Edesess’ claim that sophisticated mathematics and empirical evidence are too often used as a sales tool in the investment finance field. However, members argued, it is important to recognize the practical financial planning applications of rebalancing. Advisors maintained that rebalancing can be an effective strategy to ensure that portfolio risk is aligned with investor preferences over time. Some even suggested that infrequent rebalancing using a rules-based approach can produce a better risk-adjusted return and a less volatile return experience for clients, all while minimizing transaction consequences.
APViewpoint will be hosting its next CE eligible webinar, Tax Evasion, the Panama Papers and Global Wealth Management, on Thursday, August 30, at 4:15 PM ET. In this presentation, president and founder of Northfield Information Services Dan diBartolomeo will take advisors on a tour of the mysterious world of offshore corporations and hedge funds and their uses as tax-management tools. He will explain how tax shelters have formed and thrived, and will discuss strategies that advisors can use to legally address their wealthy clients’ tax-management priorities. You can register for the upcoming webinar here.
Marianne Brunet is a financial markets analyst with Advisor Perspectives.
