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A Crash Course in Helicopter Investing 

Kristina Hooper 

The Upshot 

5/19/2014 

Hovering over daily swings in your portfolio can keep your financial goals from taking flight, writes Kristina Hooper.
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Kristina Hooper, US investment strategist and head of US Capital Markets Research & Strategy for Allianz Global Investors. She has a B.A. from Wellesley College, a J.D. from Pace Law and an M.B.A. in finance from NYU, where she was a teaching fellow in macroeconomics.

Kneejerk reactions to short-term market moves can ground investors’ portfolios. But sticking to a long-term financial plan can improve visibility and better equip investors to reach their destination.

In my travels over the past few months, a lot of financial advisors have shared a common theme. Of their clients who are willing to move out of cash and build or maintain a significant exposure to stocks, many have started to micro-manage their portfolios. These investors are worrying about every twist and turn in the stock market—and reacting to them. What’s most alarming is that some of these investors are pulling out of stocks at the first sign of trouble. Unfortunately, they lack commitment.

Like parents who hover over their children, this group of individual investors is hovering over its portfolios. They’re “helicopter investors.” We’ve all seen those helicopter Moms and Dads who are overly involved in their kids’ lives, micro-managing their every move and reacting instantly to the choices they make. Similarly, helicopter investors are overly involved in the day-to-day moves in their portfolios.

… helicopter investors are overly involved in the day-to-day moves in their portfolios.”
This mentality is not surprising given the trauma that investors went through in The Great Stock-Market Drop of 2008-2009, which has made most investors far more risk-averse. People who have been willing to move out on the risk spectrum have done so with caution. The stock market’s enormous climb over the past five years hasn’t made them confident, but instead very skittish. Add in the fact that many investors don’t understand the current investing environment and how it’s been shaped by monetary policy, and it’s no surprise that we’re seeing more and more helicopter investors.

Mixed Signals

However, helicopter investing can be particularly problematic in an environment like last week, which stumped investors. In just a few days, the yield on the 10-year US Treasury fell below 2.5%, the Dow and S&P 500 hit new all-time highs and the Russell 2000 fell into bear-market territory.

These surprise moves can largely be attributed to our current monetary policy. Investors are quickly recognizing that the Federal Reserve is going to remain highly accommodative for longer. That means that rates likely won’t rise soon, greatly decreasing the risk of capital depreciation for Treasuries in the near term. That, accompanied with fears over geopolitical crises such as the escalation of tensions in Ukraine, prompted investors to snap up Treasury bonds, driving down their yields.

Fingerprints of Financial Repression


Another reason for the year-to-date rally in bonds is pension funds de-risking as they’ve come closer to being fully funded after last year’s rally. And of course the Fed’s continuing purchases of outstanding US Treasuries has helped reduce supply, pushing down yields.

But it’s not just the bond market that’s feeling the effects. The Fed’s commitment to continue to support the economy has made stocks more attractive to investors, fueling their rise higher. However, fears remain—and run deep—about valuations and the possibility of a correction. That’s likely why we’ve seen small-cap stocks, which sport the highest valuations, experience a correction—and why we saw an overall stock market sell-off on Friday.

Spread the Love Around

Together, these sudden moves could give investors whiplash. Understanding how our monetary policy is shaping the investment landscape can be helpful. A prolonging of a “lower for longer” monetary policy invites a discussion on the attributes of spread products, such as emerging-market debt and high-yield bonds, as well as dividend-paying stocks—asset classes that remain attractive in terms of their risk/reward profiles as rates stay low. Investors should continue to look beyond traditional sources of income for adequate yield and these asset classes offer it.

But perhaps most important for individual investors is to take a step back and not become too focused on day-to-day moves; otherwise emotion is likely to dictate their actions. Investors should take a page from the playbook of most institutional investors, who use investment policy statements to stay focused on their goals and maintain a long-term perspective.

Today, it’s critical that individual investors ensure that their allocations are aligned with their long-term goals. When you’re a helicopter investor, you’re not seeing the forest for the trees. And that elevates the risk of a crash landing.

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The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

 
The Standard & Poor’s 500 Composite Index (S&P 500) is an unmanaged index that is generally representative of the U.S. stock market.

Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an index.

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