When advising your clients on how to best manage their finances, you need to make sure their plan keeps pace with larger socioeconomic trends. Here are five major financial trends and how to advise your clients to mange them.
Bank and cash savings will continue to earn little interest
Between too much global debt, aging demographics and low energy prices, developed countries are forced to lower the interest rates on short-term notes. Since global economic growth is muted for the foreseeable future, there isn’t much reason for the Federal Reserve to raise the interest rates they pay over the next five years. In short, savers and investors will continue to earn very low returns on their portfolios.
How to mange this:To earn a higher return, your clients will have to modestly increase their allocation of stock and real estate. The downside of this trend is the overall increased risk and volatility of investment portfolios.
Too much information is the new norm
Advances in technology allow digital marketers to better target financial products and services to people via blogs, social media and email marketing. With so many options at the fingertips of your clients, it’s easy for them to become overwhelmed with information that doesn’t actually offer insight into their situation.
How to mange this: Use your knowledge and expertise to cut though the noise and help your clients make the right decision based on the facts.
The cost of investing will continue to go down
In the world of investing, lowering expenses is a smart way to increase the return. This is particularly true because there are so many expenses that are out of your control. But cost isn’t the most important thing in an investment strategy — consistent savings, investment diversification and how comfortable your client is with volatility are important as well.
How to manage this: Tell your client not to worry about pursuing the lowest fee and focus on creating an appropriate investment strategy that aligns with their goals.
Life insurance will get more expensive
Low interest rates and low returns on investments means insurance companies are likely to earn less on their portfolios, prompting them to raise the premiums for whole and term life policies. Premium income and investment portfolio returns are how insurance agencies build capital — and are what they use to pay benefits.
How to manage this:Discuss with your clients the possibility of buying term insurance for the longest timespan that makes sense to them. Term polices, unlike life polices, don’t have a cash component and usually expire after a set amount of years, making them less expensive.
Identify theft is a real concern
No electronic transaction is totally safe, and you can’t control what information is shared among new technologies like mobile pay apps. You also cannot ensure how safely your personal data is stored by third party companies, such as your healthcare provider.
How to manage this:Remind your clients to use safe online practices. Don’t open unexpected attachments, use secure passwords and have a credit card and email dedicated for online purchases.
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This article was sourced from USA Today.