There is no shortage of concerning economic news today. However, there are many tactics that affluent investors can consider taking to potentially protect their investments from stock volatility by diversifying their investments.
In this article, we explore some preventative steps high-net-worth investors can consider taking now in an effort to better withstand market swings. Although everyone’s personal financial situation is unique, we hope that some of the strategies presented here will help.
This article explores the following topics:
Money is an inherently emotional subject. People may have varying degrees of attachment to (or understanding of) theirs, but no rational person considers their retirement savings and investments with apathy. Understanding how you feel is key to understanding how your emotions affect your investments—as well as how you can manage them.
When markets are volatile, as we are experiencing now, it can bring anxiety to normally-calm people. can have anxiety.
When the root of a feeling is “I’m afraid that I might lose my money,” we tend to push rational thinking out of the way. This is why fear is often an investor’s enemy: Left unchecked, it can inhibit our ability to hold a reasoned, patient mindset—the very kind that long-term investing requires.
Certainly, the hard part can be keeping these fight-or-flight instincts from getting the better of our judgment as investors. This is where an experienced financial professional can assist. Working together, you and your financial advisor can discuss your concerns and implement a financial plan that can address those concerns while ensuring that you are still on track to pursue your financial goals.
As you assess your concerns, ask yourself these questions:
Once your emotions are under control, it is important to review your goals and objectives. For instance, are you saving for a comfortable retirement, saving for a second home, or creating an education fund for your children or grandchildren?
Each of these milestones involves a different timeline and amount of money. There is no one-size-fits-all approach when it comes to protecting your investments from stock market volatility.
Understanding how you want your money to work for you, based on your time horizon(s) for various financial and personal goals is important for risk tolerance planning. For instance, if you are saving for your granddaughter’s education in seven years, you may need to take on more risk for these investments as the time horizon for when you will need the funds is relatively short.
A regular review of your financial plan is always recommended, especially as changes to your personal situation occur and/or when there are substantial changes to the economy that could impact your financial planning efforts. If you “set it and forget it” you run the risk of not being able to pivot fast enough, based on market conditions, to account for changes that could impact your financial goal planning and execution efforts.
Over the past few years, most investors have reaped the benefits of a strong “bull market”. Now that the market is more volatile, it becomes increasingly important to review your asset allocation on a regular basis.
Once you’ve determined the correct allocation for your investments, commit to reviewing your portfolio regularly. The goal is to avoid reacting to the market as a whole, but to keep an eye on your progress toward your overall financial objectives.
Your portfolio needs to be properly diversified and maintained. “Diversification,” in the financial sense, refers to spreading your investment across multiple types of assets. Your portfolio might be comprised of stocks, mutual funds, ETFs, bonds, certificates of deposit (CDs), as well as alternative investments such as real estate, precious metals, and commodities, for example.
As your wealth grows, the complexity of your financial situation may also expand. There may come a time when your comfort level with overseeing your personal finances causes you to seek the services of a financial professional who can take the day-to-day management of your wealth.
When you hire a fiduciary financial advisor, they are responsible for assisting you with building a wealth management plan that can encompass the creation of a financial plan as well as an investment strategy.
As a fiduciary, this also means that the advisor must look out for your best interests with respect to your financial goals and risk tolerances and make appropriate recommendations. Working with an experienced financial professional can help you avoid making costly mistakes.
The bottom line is there are many tactics you can take to potentially protect your hard-earned assets from market volatility.
The ViaWealth, LLC team is an experienced group of financial professionals who specialize in working with high-net-worth individuals and families pursuing their financial goals and aspirations. Contact us at your earliest convenience to learn more.