Using Wealth Management To Navigate A Bad Economy
Posted on: 22 December 2020
When folks think about the wealth management process, they often focus on growing their money and assets. A big part of developing long-term wealth, though, is about navigating treacherous downturns in the economy. The folks who preserve their wealth the best during bad times are often the ones who end up winning when the economic recovery comes around.
How does a wealth management advisor help their clients navigate a bad economy, though? Let's look at three common wealth management strategies for tough times.
Staying Focused on the Long-Term
When bad news comes rolling in it, it feels like a daily drumbeat. If you look back at a definitively bad stretch for the economy, such as Q1 2020 or the Great Recession that started in 2007, the daily stream of bad news was almost paralyzing.
Although a wealth management advisor doesn't want their clients to be unrealistic during down economies, it's also important to keep an eye on the prize. In the long run, the modern economy pays returns to folks who don't freak out over daily events.
Consider How Close the Client Is to Retirement
A big factor in wealth management is just how close the client is to retirement. Someone who is 30 years old should go into a down economy with a focus on buying the dips. If real estate crashes, for example, that's the time for someone who has decades of investing ahead of them to buy.
Conversely, someone who needs their money soon will probably want to be more cautious and move away from investments that could take a while to pay off. Those clients may need to move their investments into low-risk bonds, money market funds, and recession-proof stocks.
Hedges
You buy insurance for all kinds of things, and there's no reason you shouldn't buy insurance for your wealth. Hedging often involves targeting investment vehicles that run strongly counter to what your larger portfolio contains.
If someone has a lot of money tied up in oil leases, for example, they might purchase cheap options on extreme downward swings in oil prices. As long as the economy keeps trucking along, the leases keep paying and the options expire unexercised at close to zero cost. When the oil market crashes, though, the options go up in price and the holder can exercise or sell them. This has a net effect similar to an insurance policy paying off after a car accident.
For more information about wealth management, contact a local company.
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