Harold Evensky is President of Evensky and Katz, a fee-only financial advisory firm based in Coral Gables, FL.  Mr. Evensky is widely recognized for his leadership in the financial advisory industry, having pioneered the retail application of concepts such as the core and satellite approach to investment management.  He has served on the Boards of a number of national industry organizations, is a frequent speaker, and is the author of several books, the most recent of which is Retirement Income Redesigned: Master Plans for Distribution: An Advisor’s Guide for Funding Boomers’ Best Years (available via the link to Amazon above).

We interviewed Mr Evensky on May 20, 2008.

In your letter to your clients at the end of January, you said you believed the economy was not in a recession at that point, but might likely be in one during this year.  You also said the market already reflected expectations with respect to a recession.  What is your current thinking on these two questions: is there a 2008 recession in the cards, and are the US markets fairly reflecting these expectations?

My thinking has not changed.  Whether we officially end up in a recession (technically two quarters of negative GDP growth) is moot.  We clearly won’t know until we are well past the worst of it.  It is still iffy whether we will be formally in a recession, but psychologically we are in a recessionary mode.  

We are fundamental believers in an efficient market.  The market today reflects those expectations already.  We are not big in believing that we, or anyone, can predict the market. 

Have you adjusted asset allocations in retirement portfolios in the last year, in response to the sub-prime, commodities markets, or general economic forecasts?

Absolutely not.  We don’t adjust strategically based on a one year period.  We have made adjustments in the last few years, mainly to increase international exposure.  This was due to the relative poor performance in domestic equities, and, as a result, our clients reaching a greater comfort level with international exposure.  We have always been – and still are - under-invested in internationals, with respect to where we see their role as an asset class. 

Over the long term we expect relatively modest equity returns.  We have made some modifications within broad classifications.  In fixed income, we have extended out duration exposure, from roughly 3.5 to 4.5 years.  Our quality had been A or better, and we are now at AA.  We have a small/value bias, which we have slightly decreased, in order to increase our international exposure.  We are still biased to small/value, which had a great run last year and we now expect to see a modest regression to the mean.

None of these changes were specifically related to the sub-prime or to a fear of recession.  By the time these events surface, it is too late to invest.

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