It can be a market for risk takers.
Investor and personal finance author Ric Edelman believes taking chips off the table is now a practical strategy.
“It comes down to behavioral finance. It comes down to human emotions,” the founder of Edelman Financial Engines told CNBC’s “ETF Edge” this week. “Do you have the courage? Does your spouse have the courage to persevere when things get ugly like they did in 2001 or 2020? Can you hold on?”
Edelman added that there is a “long list of reasons” to be cynical right now. He refers to problems in the real estate market, high interest rates, the threat of a government shutdown and the war between Israel and Hamas.
“It’s easy to be negative, and that can lead to asking yourself, ‘Why would I want to put myself in the position of maybe losing another 20 or 30% of my money when I’ve already accumulated a lot of money? and I… I’m already in my 60s or 70s and I need the security and protection and also get five percent in my bonds or my US Treasury or my bank CD? Why don’t I just park it? Earn 5%. Call it a day,” he said.
Edelman acknowledges that the strategy could be less profitable, but points out that it is important to sleep better at night.
“I’m not sure everyone in the investment world acts logically and not emotionally. You have to know yourself,” Edelman said.
Capital Group’s Holly Framsted also sees investors reducing their risk, and her firm is trying to accommodate them by offering a new line of fixed-income exchange-traded funds.
“We are seeing increasing interest in short-dated fixed income,” said the company’s head of global product strategy and development.
Framsted expects investors to switch to short-term funds in response to today’s market volatility.
“[The Capital Group Core Bond ETF] “was among the original six funds we launched,” Framsted said. “We are seeing interest from our customer base, which tends to be longer-term oriented and covers the entire spectrum. “But given the environment we are in, there are definitely a lot of short-term conversations.”
The company’s bond ETF is virtually unchanged since its launch on September 28th. Capital Group had more than $2.3 trillion under management as of June 30, according to the company’s website.