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As markets adjust to a new phase of lower interest rates, many investors are eager to chase yield—while others remain heavily concentrated in tech stocks after years of market dominance by a select few names. This shifting landscape presents both challenges and opportunities for financial advisors seeking to keep clients disciplined, diversified, and aligned with long-term goals.
At the 2025 Schwab IMPACT Conference in Denver, Inga Rachwald, Senior Investment Portfolio Strategist at Schwab Asset Management, offered timely insight into how advisors can navigate this complex environment—where investor psychology, income demand, and market concentration are shaping portfolio decisions like never before.
The Yield Temptation in a Lower-Rate World
With interest rates trending lower, it’s no surprise that investors are once again stretching to find yield. Rachwald noted that, “as rates are coming down, the short end of the yield curve—such as money market funds—has seen yields decline. So you see investors clamoring for yield in potentially riskier parts of the bond market.”
That hunger for yield, while understandable, often leads clients toward high-yield bonds and riskier credit sectors that may not adequately compensate for the risk. “We’re seeing more interest in high-yield bonds, but the spreads are fairly tight,” Rachwald explained. “We just don’t see a reason to take on that additional risk for a very small increment of additional yield.”
She cautions that advisors must help clients recognize that these types of instruments behave more like equities than traditional fixed income. “High-yield bonds tend to be more correlated to equity price movements,” she added. “Some clients inadvertently hop into high yield thinking they’re diversified, when in fact they might actually be reducing diversification.”
In short, the current environment rewards discipline over opportunism. Advisors, Rachwald suggested, should keep clients focused on quality and structure rather than yield-chasing tactics.
Avoiding Behavioral Pitfalls When Reaching for Yield
Rachwald identified a common behavioral trap: investors looking only at headline yields without understanding the underlying risks. “You see some behavioral finance issues come up—clients focusing on the posted yield number without considering after-tax implications or the risk profile of the underlying issuer,” she said.
Her advice for advisors: shift the conversation from yield to structure and quality. Practical strategies include implementing bond ladders to manage both reinvestment and interest rate risk, and emphasizing high-quality, actively managed bond funds for stability.
Diversification in an Overconcentrated Market
The dominance of the “Magnificent Seven” stocks has made diversification a frustrating conversation for advisors. Many clients benchmark their performance against a narrow slice of the market that’s driven most index gains in recent years. “It’s been a big frustration for advisors,” Rachwald acknowledged. “Clients are inadvertently benchmarking their plans to the performance of a very concentrated part of the market.”
This environment, however, is also sparking renewed interest in parts of the market that have long lagged—such as small caps and REITs—especially as rates decline. “Some of those interest rate–sensitive areas of the equity markets, like REITs and small caps, are starting to make a comeback and reignite the diversification argument,” she said.
Diversification isn’t about reducing conviction, Rachwald stressed—it’s about protecting against volatility. “Diversification doesn’t mean a lack of conviction,” she said. “It’s really important for downside protection. The Magnificent Seven were down 40% in 2022 when the S&P 500 fell only 18%. If you mistimed that, it could be disastrous for a portfolio.”
Advisors, she noted, can reframe the conversation with clients from short-term relative performance to long-term resilience.
Managing Concentration Risk in Client Portfolios
For many clients who’ve built significant wealth through big tech holdings, concentration risk has become a major portfolio challenge. Rachwald pointed to direct indexing as one of the most effective tools available.
“We’re seeing a lot of usage of direct indexing,” she said. “It allows you to exclude the concentrated names you already hold, diversify your exposure, and it also has tax-loss harvesting benefits.”
She also highlighted fundamental index strategies as another solution. “These are index strategies that reweight away from price, so you don’t get the same heavy exposure to momentum stocks. They tend to focus more on fundamentals and lean a bit more toward value relative to growth-heavy names.”
For advisors, these tools not only reduce portfolio concentration but also demonstrate proactive tax-sensitive management—something clients value during periods of market transition.
Aligning Portfolios with Client Goals
Schwab Asset Management emphasizes a goals-based framework that ties portfolio design directly to client outcomes. Rachwald believes this approach is the antidote to emotional or reactionary decision-making during volatile periods.
“Really start with a financial plan rather than just an investment portfolio,” she advised. “Let the financial plan and the goals drive the investments. That way, when you talk with clients, the conversation is about how they’re tracking toward their goals—whether that’s buying a house in two years or retiring in twenty-five.”
This approach also helps limit behavioral pitfalls such as panic selling or loss aversion during market shifts. “Having those conversations before market events occur means that when they do happen, there’s already a plan in place,” Rachwald explained.
The Role of Active and Factor Strategies
When looking ahead to 2026 and beyond, Rachwald sees a broadening opportunity set for active management, factor-based investing, and alternatives. “It all goes back to diversification,” she said. “Diversification isn’t just about small caps, large caps, and international stocks—it’s also about incorporating alternatives and factor strategies that offer lower correlations to the broader equity markets.”
For advisors, blending factor exposures—such as quality, value, or low volatility—with traditional allocations can help mitigate market imbalances. Schwab Asset Management has been a leader in creating accessible, factor-based and fundamental index strategies that complement core portfolios while maintaining cost efficiency.
Staying Disciplined Amid Market “Craziness”
Rachwald summed up her advice by returning to the behavioral side of investing—something advisors must manage every day. “There’s so much going on globally and economically,” she said, “and the best thing advisors can do is help clients stay anchored to their goals.”
“When meetings start with ‘what are your goals?’ rather than ‘why isn’t my portfolio outperforming the Magnificent Seven,’ it reframes the conversation,” she continued. “It helps clients see that their portfolio’s job is to serve their life, not chase benchmarks that might not be relevant to their needs.”
That discipline—staying focused on quality, diversification, and long-term goals—is the hallmark of Schwab Asset Management’s philosophy. With its deep resources, goal-based frameworks, and innovative indexing solutions, the firm continues to empower advisors to navigate evolving markets with clarity and confidence.
Explore Schwab Asset Management’s full range of portfolio strategies, market insights, and advisor resources at www.schwabassetmanagement.com.
Related: How Behavioral Finance Turns Market Volatility Into an Opportunity for Advisors