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Schwab’s Sonders: Moody Market Means Opportunity for Advisors

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Charles Schwab’s (SCHW) chief investment officer, Liz Ann Sonders, says we are in the “mature on optimism” phase of a market cycle, which means it’s time to get back to “tried and true” strategies, she explained early Thursday on Bloomberg TV.

“I have highlighted that I think we are in that third phase, that mature on optimism phase [as defined by investor Sir John Templeton], in which, in a secular bull market  … you have more bouts of volatility, more mood swings in market and more frequency of pullbacks,” she explained.

This means that plenty of investors are anxious, if not paranoid, about what to do when the market weakens, giving financial advisors a potentially key role to play by providing clients with discipline and support.

In the current market environment, “You have to go back to the tried and true: diversification, global tactical asset allocation and discipline around things like rebalancing, which is kind of a boring thing to talk about, but it forces investors to do what we are supposed to do: buy low, sell high,” Sonders said. “When left to our own devices and our own emotions, investors just don’t do behave like that.”

She sees today’s equity markets as resembling those of the mid- to late-1990s. “And there are a lot of analogies to ’98, given what is going on globally and with oil prices,” Schwab’s investment strategist explained. “It’s going to mean a continued battle between short-term and long-tern sentiment.”

Investors are grappling with new patterns of behavior, she says.

Since 2000, “There’s so much money in the market that the experience is colored, and muscle memory is there, because of the two financial crises,” Sonders explained. “We are almost paranoid about making sure that we do not get stuck in next bubble, however you define that, so we don’t get stuck … in the next major downturn … The desire to pull out and to almost panic happens at a much faster span now.”

What to do? “There’s no one perfect answer,” she said, when asked when to rebalance a portfolio.

“It really depends on the investor, the time horizon, volatility in the markets, if you are in taxable vs. a nontaxable account,” the investment expert stressed. “You don’t want to cause a lot of undue, unnecessary transactions.”

— Check out Schwab Sees Bull Market Raging On in 2015, With Caveats on ThinkAdvisor.