5 things top advisors are warning their wealthy clients

Inflation has become one of the most hotly debated topics in financial circles of late, with concerns that government stimulus and a possible post-pandemic consumer spending spree may drive up prices.

“I have for years thought that inflation was being kept suppressed by the incredible pace of productivity through technology,” said Greg Fleming, president and CEO of Rockefeller Capital Management.

Investors always need to be concerned about inflation, said Catherine Keating, chief executive officer of BNY Mellon Wealth Management.

“If you think about the business cycle and what often ends a business cycle, it’s an increase in inflation which causes the Fed to increase interest rates, which can in extraordinary circumstances lead to a recession and a bear market,” she said.

Just on Tuesday, financial markets were roiled when Janet Yellen said interest rates may have to rise moderately to keep the economy from overheating. The Treasury secretary’s comments crashed into a stock market already showing signs of jitters over rising prices.

Still, Keating expects inflationary trends to be transitory, given a number of longer-term deflationary factors. These include an aging economy, technological disruption and a potential increase in the cost of debt.

The onset of the COVID-19 pandemic set off an extraordinary year for the market, with new individual investors piling into stocks, volatility rising and, recently, tech shares selling off after months of breakneck increases.

If anything, the advisers pushed investors to think beyond the day-to-day narrative.

“Don’t invest via the headlines,” said Penny Pennington, managing partner at Edward Jones.

Gina Martin Adams, Bloomberg Intelligence’s chief equity strategist, questioned whether markets are in bubble territory. Despite the headlines, there is little evidence that there has been a dramatic upturn in prices detached from fundamentals that causes irrational exuberance; those would be bubble conditions, she said.

In the context of prior bubbles such as those in the 1920s or 1990s, the current stock surge is “nowhere near” those levels, she said.

“Our view is while there are some symptoms of a bubble potentially emerging in the equity market, we may only be at the very beginning,” she said.

Ida Liu, the global head of private banking at Citigroup, is asking clients to move beyond their “home bias” in favor of geographic diversity for their portfolios. She especially sees opportunities in China.

Where to from this low base? There could be a hike on the horizon.

“Interest rates are at extraordinarily low levels, really the lowest of our professional careers,” Keating of BNY Mellon said. “So we do think that you will see a rise in interest rates at some point.”

Citigroup’s Liu said sitting on cash in such a low-interest rate environment is a mistake. “With rates where they are, your cash isn’t working for you. So might as well as get invested,” she said.