Planners face new paradigm
Equities don’t always outperform other asset classes, time diversification is a worthless concept and market timing is necessary and expected, according to Ken Solow, chief investment officer of the US-based Pinnacle Advisory Group.
He argued that under this “new paradigm”, traditional-style investment consultants could become irrelevant, and would need to change their approach from the “stock-based school of investing”, just as Solow himself adapted.
Solow spoke about the “new paradigm of portfolio construction” at this year’s Portfolio Construction Conference.
He recommended three methodologies that financial planners could adopt to aid the transition from old to new paradigm, including outsourcing asset allocation to larger firms, strategic ownership of non-style constrained money managers and the use of in-house analysis to adjust portfolio construction based on valuations and market cycles.
He also touched on the sensitive issue of planners predicting market changes.
“This idea of forecast and prediction is okay, it’s honourable, it’s professional. In a world of lower returns, I would argue all day long it’s going to be necessary,” Solow said.
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