Looking ahead to 2014

Financial advisors are cautiously optimistic for 2014: CNBC poll

Jim Pavia | Senior Editor-at-Large
Paul Taylor | Stone | Getty Images

As they begin planning their 2014 investment strategies for clients, a group of selected financial advisors polled by CNBC said they are bullish on value stocks versus growth stocks heading into the new year.

The 15 advisors who participated in the poll are part of the CNBC Digital Financial Advisor Council, a 20-member group of financial executives with cumulative assets under management of about $23 billion.

When asked how concerned they are about a bubble in the U.S. stock market in 2014, 44 percent of the advisors said they were "somewhat concerned." Additionally, when questioned if they expected a significant correction for U.S. stocks in the year ahead, 40 percent said yes, believing it would be in the 10 percent range.

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"Given the cyclical upturn in the U.S. economy, any correction in the stock market should be shallow [10 percent or less]," said Ed Gjertsen II, vice president of Mack Investment Securities and a member of the advisory council. "My largest concern is the continued weakness in velocity of money. We are drowning in a monetary liquidity pool," he said.

Ivory Johnson, founder of Delancey Wealth Management and a member of the council, believes there will be an adjustment in domestic equities once the Fed begins to taper, while Europe will likely follow the behavior of Japan and the U.S. and financially engineer growth for its markets in 2014.

Asked what their recommended allocations across client portfolios will be for the new year, the advisors said they remain true to equities and bonds. In terms of ranking, they placed equities, bonds and alternative investments as their top investment strategies for their clients' portfolios. We also asked the advisors which asset class they will be looking into to add more international exposure in client portfolios in 2014. Of those polled, 77 percent said equities, while just 8 percent selected bonds.

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Richard Coppa, managing director of Wealth Health and a council member, believes investors should be particularly concerned about their fixed-income portfolio.

"I think the big concern for clients is whether their fixed-income portfolios will lose value if and when rates rise and the Fed tapers," he said. "Having said that, as advisors, it's important to educate and discuss the value of having fixed income in a portfolio and to not overallocate to equities."

The group of advisors also stressed that client portfolios should be driven by the amount of risk clients believe they can handle.

"A client's portfolio allocation should be driven by the amount of risk they can take financially and psychologically," said Carolyn McClanahan, a council member and founder and director of financial planning at Life Planning Partners. She added that "the market is relatively expensive compared to the past. Will it become more expensive [which means markets go up more], or will it correct to historical means?"

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If investors rebalance regularly and keep enough in conservative assets to fit their needs, then it won't matter what the market does in the short term.
Carolyn McClanahan
Founder and director of financial planning at Life Planning Partners

She explained that frequent monitoring is key. "If investors rebalance [their portfolio] regularly and keep enough in conservative assets to fit their needs, then it won't matter what the market does in the short term," she said.

Council member Diahann Lassus, president of Lassus Wherley, said it is "always important to continue to focus on rebalancing a portfolio." She added that "taking profits in equity and adding to other asset classes is an effective way to manage risk."

Mark Cortazzo, senior partner and founder of MACRO Consulting Group, also a council member, said he hopes "that investors start to respect risk again before it is too late."

(Read more: It's time for investors to rebalance portfolios)

Although financial advisors remain hesitant to do any economic forecasting or focus on investment trends, many understand current market conditions need to be addressed because they're obviously on the minds of clients. The key, advisors say, is to address these hot topics and suggest that investor-clients process them with a long-term approach to their financial goals.

"I own a crystal ball, but it doesn't work," said council member Sheryl Garrett, CEO and chief compliance officer of Garrett Investment Advisors.

"I can't make short-term predictions about the markets, nor do I think anyone can with any degree of consistency. I do support an appropriately diversified, low-cost, low-maintenance, long-term portfolio allocation for all investors," she said.

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"Seemingly anomalous market and economic circumstances have become the norm, especially since the financial collapse in 2008, and the prospects for 2014 appear similarly confounding," said Tim Maurer, vice president of Financial Consulate and also a council member. "One thing remains consistent, and that's uncertainty. Uncertain circumstances require investors to maintain a disciplined approach to portfolio management and to increase positions that nominalize volatility, like cash."

—By Jim Pavia, CNBC.com. Follow Jim on Twitter @jimpavia.