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Clients Need a "Thoughtful, Strategic View" of the Market

By Crucial Clips     July 22, 2015
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Jul. 13, 2015 

MURRAY COLEMAN, REPORTER, FINANCIAL ADVISOR IQ: Hi, this is Murray Coleman with FA-IQ. I’m here today with Gregg Fisher, founder and chief investment officer at Gerstein Fisher in New York.

And, Gregg, how do you keep clients from getting too hyperintensive about the current market fluctuations?

GREGG FISHER, FOUNDER AND CIO, GERSTEIN FISHER: Hey Murray, thanks. Yeah, I think advisors now counseling their clients — helping them make healthy choices — in an environment like this one where we’ve seen a lot of volatility on the heels of the last five or six years, where we’ve seen the Dow do something like 12 — 13,000 points in the last handful of years.… So, 2 — 300 points on the Dow really is an insignificant move. Today, we see the Dow up 200 points — last week, a day where it was down 200 points. And 200 points isn’t what it used to be. Especially on the heels of 12 or 13,000 points in the last few years.

I think it’s very important that investors maintain a very thoughtful, reasoned, strategic view right now. A very important thing that investors should be doing — and that advisors should be counseling their clients to do — and a mistake that I see being made over and over in the past — is to make sure that clients have, number one, adequate reserves. So if you’re somebody in retirement or at whatever phase of life, in our view at Gerstein Fisher, basically any money that you think you’re going to need in the next five or six years at a minimum probably shouldn’t be anywhere near the stock market. You probably want to have a good handful of years’ worth of your living expenses, or the money that you might need for shorter term things, sitting in things such as cash in the bank, money markets, short-term government bonds or maybe short-term municipals.

MURRAY COLEMAN: Do you count that, Gregg, as part of your long-term asset allocation or is that a separate bucket?

GREGG FISHER: I personally see that as part of the long-term asset allocation. You know, ultimately, investors should look at their portfolios as portfolios. And you need to take a very careful look at the marginal contribution that every choice you make makes to the bigger mosaic.

That said, if you had five years’ worth of your living expenses, for example, sitting in short-term bonds, that might represent 20% of your portfolio; that might represent 5% of your portfolio; that might represent 30% of your portfolio. There is something to be said about the percentage that that represents of the total, but I would start with this immunization strategy of trying to immunize your short-term liabilities with money that’s not in the stock market.

MURRAY COLEMAN: So what are you telling your clients on the edges of their portfolios to do these days?

GREGG FISHER: The advisors that we’re working with here at Gerstein Fisher, our partner advisors, we’re counseling them around these dimensions. We’re making sure that our clients have adequate reserves — limited uses of leverage.

But the other thing in terms of their long-term strategic investment strategies — you know — at Gerstein Fisher, we apply a multi-factor investment approach. We’re basically searching for the risks that do a good job explaining returns. When you look around.…

MURRAY COLEMAN: Such as?

GREGG FISHER: Well, one example would be foreign currencies or foreign investments. I mean, we look around the globe. Right now, the U.S. represents about 50% of the market cap globally, but about 20% of the GDP. Whereas, you look outside of the U.S., the rest of the world represents 50% of the market cap, the non-U.S. portion, but a much larger percentage of worldwide GDP.

MURRAY COLEMAN: Thank you very much, Gregg. I appreciate your time.

GREGG FISHER: Thank you very much, Murray.