Building Legacies that Last Estate Planning and Elder Law

Market Shifts and Trust Investments

Draft_lens6229982module49470302photo_1249598396business-man[1]Some experts believe that equities and bonds are about to undergo a dramatic shift in their relationship. That could have an important impact on how trustees invest trust assets.

For approximately 30 years, many types of investors have enjoyed a luxury that many of them did not know was unusual. The equity and bond markets had a negative correlation. That made maintaining a diversified portfolio relatively easy.

Prior to the last 30 years, the two markets had been positively related. Some experts believe the change was brought about because of the relatively low inflation rates in recent decades. They believe that inflation rates will rise in the near future and cause a return to the more historical positive correlation between equities and bonds.

This is reported by Financial Advisor in "Forget 30 Years Of Stock And Bond Divergence, Bernstein Says."

If this shift does occur, trustees will need to pay attention. Trustees are required to invest trust assets by following the prudent investor rule. For the last 30 years, that has meant following modern portfolio theory and diversifying assets between different classes of investment. However, a return to bonds and equities having a positive relationship will make diversification of investments more difficult.

Trustees' jobs will become much more difficult.

Of course, this shift has not happened yet and might never happen. Most market predictions never come to fruition. However, trustees should pay attention and make sure that they are following the best advice about investing trust assets.

Reference: Wealth Management (Jan. 10, 2017) "Forget 30 Years Of Stock And Bond Divergence, Bernstein Says."


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