Market volatility can lead individual investors astray.
Nick Ryder of Cashmere Capital Management says investors shouldn’t use the current situation as an excuse to jump into defensive trades such as high-dividend stocks and bonds.
“Too often we see people take an income-driven approach, and that leaves a lot of things on the backburner,” the firm’s chief investment officer told CNBC’s “ETF Edge” this week. “We typically advise all of our clients to take a total return-oriented approach, and this applies to stocks, bonds, and everything in between in their portfolios.”
Ryder, whose firm has $3.5 billion in assets under management, warns against the so-called “search for yield.”
“For fixed income, it can be yield-seeking in terms of further eliminating interest rate risk and taking on larger durations and portfolios. [and] “Moving from investment grade to high-yield bonds has very different risk and return expectations,” he added.
Ryder argues that income should not be the basis of a long-term portfolio. He points out that investors are better served by starting with their goals and risk tolerance and growing their income. This is because long-term investments include pullbacks. An income-first approach can quietly push a portfolio into unintended bets, he warns.
He is also optimistic about the macro backdrop.
“Overall, the economy has been very resilient,” Ryder added. “You’ve seen that the company’s profitability has been very resilient.”
This total return approach is also why Amplify ETF’s Christian Magoon urges investors not to let distributions dictate their decisions.
“We believe being smart about yield means balancing attractive yields with upside or long-term capital appreciation. It’s not just about chasing the highest yield possible,” the company’s CEO said in the same interview. “We think it’s a yield trap.”
