Using Alternatives to Fight Volatility

That’s the upshot of a recent survey by life insurance provider Jefferson National. The survey, which points to the federal government shutdown and debt ceiling stalemate as the latest catalysts for ongoing volatility, found nearly two-thirds of advisers (64%) increased their use of alternative investments over the last five years.

Researchers also observed a majority of advisers (55%) predicting their allocation to alternatives will continue to grow through 2018 and beyond. The use of tactical management strategies also remains strong, according to the survey, with 61% of respondents indicating they are likely to employ tactical strategies in the current market. That’s compared with 39% taking a buy-and-hold strategy.

Jefferson National surveyed about 400 RIAs and fee-based advisers, mostly during the second half of September. When asked why they use alternative investments, roughly three out of four advisers (73%) indicated “managing volatility.”

Another 76% of advisers said they would consider increasing the use of alternatives if they could be better accessed in low-cost, tax-deferred accounts.

The following is a list of other survey highlights:

• More than 70% of RIAs said tax-deferred investing is essential to managing volatility and rising taxes;
• More than nine in 10 respondents (91%) said their clients are concerned about a rise in the capital gains tax; and
• Seven in 10 advisers (71%) have considered using a low-cost, tax-deferred account to avoid paying increased capital gains.

More on the survey and its methodology can be found here.