Wall Street Journal

What We've Learned About Target-Date Funds, 10 Years Later

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Jeff Brown discussing target date funds.

Back in 2008, many investors looking ahead to retirement in two years had a shock when “target-date funds” designed for them plummeted in value. Many had assumed those funds, targeted to a 2010 retirement, were safe from large moves that late in the game.

Another concern: The automatic investing strategy ignores changing conditions. Patrick R. McDowell, investment analyst at Arbor Wealth Management in Miramar Beach, Fla., says low bond yields in recent years have reduced TDF income after the target date, and increased the risk of losses on bond holdings if rates rise. (Higher rates hurt bond values because investors favor newer bonds that pay more.)

What’s more, he says, stocks and bonds have often moved in tandem in recent years, reducing the benefit from diversification, which assumes one asset goes up when the other falls.

Retirement savers who are automatically put into TDFs have the right to switch to other funds in their retirement plan as they learn more or conditions change, and Mr. McDowell recommends that investors get more involved as retirement nears. He says he often recommends investors nearing retirement leave the target-date fund and buy a mix of stock and stable-value funds—which contain bonds insured against loss and are designed to preserve capital while generating returns similar to a fixed-income investment—to reduce danger from a potential market plunge.

High-Yield Jitters Lead Some Advisers to Sell ETFs

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Daisy Maxey discussing ETFs.

Some financial advisers have been trimming their clients’ exposure to high-yield bond exchange-traded funds or cutting it altogether in recent months. They are worried that an interest-rate rise could trigger a rush for the exits that might exacerbate current liquidity issues in the market for below-investment-grade debt…

Patrick McDowell, a financial planner with Arbor Wealth Management in Miramar Beach, Fla., also began trimming his clients’ high-yield ETF exposure over the last few months. He is concerned that the “hot money” that has flowed into high-yield ETFs in a desperate search for yield will flow out “at the first sight of a rate hike,” he says.

“I do think there’s going to be some gapping down [of the share prices] of those high-yield funds,” says Mr. McDowell, whose firm manages $130 million. “We’ll reduce it so it won’t be devastated if there’s a rush to the exits. We might stay in a very small allocation for the very foreseeable future.”

The firm is redeploying the money to other areas of fixed income and boosting its cash allocation, he says…

Advisers Get Specific in Emerging-Markets Investing

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Daisy Maxey discussing emerging-markets.

Financial advisers are getting pickier about how they put client money into emerging markets…

Patrick McDowell, a planner at Arbor Wealth Management in Miramar Beach, Fla., says he stopped using broad emerging-markets funds in 2008 or 2009, and now has little emerging-markets exposure. But he is now considering a small allocation to a few country-specific ETFs, including PowerShares India ETF, he says.

“The emerging-markets world is not what it used to be, and ETFs didn’t reflect that change until recently,” says Mr. McDowell, whose firm manages $110.2 million. “Pre-2008, you could buy almost any emerging-markets ETF and cash in on relentlessly dependable growth. It seemed like the population growth alone in most of these countries would power investment gains for a long time.”…

Burned Out Advisers No Help to Clients

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Veronica Dagher discussing different tactics to prevent advisor burnout.

One good habit that therapists recommend: Think regularly and consciously about why you are in the advising business.

Patrick McDowell, an adviser in Miramar Beach, Fla., uses a version of this tactic when he starts to feel the burn. He leafs through photographs of his clients on his customer-relationship management software. “When I actually see the faces of the people I’m trying to help, it brings me back to why I do it,” he says. His firm, Arbor Wealth Management, manages about $110 million in client assets.

Rethinking Apple: Growth Stock, Value Play—Or Both?

Patrick R. McDowell, CFP®, AIF® was quoted in a Wall Street Journal article by Brett Arends discussing Apple stock.

Many people still think of Apple as an exciting "growth" stock, promising hockey-stick returns. They're wrong. These days the company is better viewed as a so-called value stock—a slightly dull one that should be owned for the cash flow and dividends it generates, much like, say, a Johnson & Johnson.

Patrick McDowell, a portfolio manager at Arbor Wealth Management, which is based in Miramar Beach, Fla., and has $55 million under management, says the firm began buying Apple stock this week as a value investment for some clients based on the income. "When you look at the fundamentals of Apple, we see it as an incredible value buy," he says.