Mortgage Bomb

We believe the world is moving too fast to be complacent with a passive indexing strategy.

Let’s outline one potential scenario that illustrates our point.

The unwavering FOMC party line had been that inflation is moving toward the Federal Reserve’s target of 2%. However, tariffs and immigration have changed the landscape, opening a potential path toward stagflation, a combination of high inflation and stagnant economic growth. The Fed cannot fight both inflation and a recession at the same time. They can either raise rates to try to reverse the trend in inflation expectations or lower rates to support growth. Recent speeches by FOMC voters suggest that the Fed could end up being forced to raise interest rates even in an economic downturn.

If the Fed does raise interest rates, it could create a chain reaction involving government layoffs, rising unemployment, reduced consumer spending, and homeowners downsizing and selling their homes. The housing market is particularly susceptible to heightened interest rates, as while the economy slows, mortgage rates rise, adding further downward pressure on housing prices. Under this scenario, even homeowners not forced to sell will feel a loss in their wealth as the market value of their home falls. This leads to more cautious consumers and investors and feeds the downward economic spiral.

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While we are not predicting a second Global Financial Crisis, you, as an adviser, should be aware of how quickly things can unfold and equipped with the tools to take care of your clients in case they do.

Passive indexing strategies, by their nature, lack the flexibility to respond to rapidly changing economic conditions. They also fail to reduce risks associated with specific assets like housing before it’s too late. By employing these strategies, advisers will find their portfolios reacting to market events after they have already occurred, resulting in potential losses and tense client relationships.

Advisers cannot afford to be passive in a world of uncertainty, but active management takes too much time away from the core of your business. Luckily, with Pave, there is only one active decision advisers need to take to secure the future of their clients and their business: sign up.

Pave is designed for the investment landscape we are now entering. This new terrain will require adept and analytical decision-making with strict attention to what is moving stocks at any given time. Pave monitors 88 risk factors and 59 return factors for over 9000 assets to determine how to position each of your client’s portfolios. If there are assets, industries, or even sectors that are not in tune with what is driving the market, Pave will recommend changes to portfolio allocations and can even trade them automatically. All of this can be configured to run in the background turning your wealth management practice active without requiring you to be.

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With Pave, you avoid having to answer agitated client calls wanting to know why you are responding to events after the fact, rather than reacting in the moment or even anticipating changes in the heightened uncertainty of our world.

To learn more, please reach out by emailing sales@pavefinance.com or pressing the button below. We look forward to speaking with you

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1. Testimonial provided by Dre Griggs in August of 2023. Dre is not a current client of Pave Finance, Inc. (“Pave”) or any of Pave’s affiliated entities. Dre is an Independent investment adviser with $300 million in AUM.  No compensation was provided in exchange for this testimonial.

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