In the current world of economic markets, turbulence can strike at any time, leaving investors anxious and uncertain. However, a set of five wealth planning strategies can provide a steady course through these challenging periods.
Since the outbreak of the COVID-19 pandemic, financial markets have encountered significant challenges. Central banks have tightened financial conditions to combat post-pandemic inflation, and financial shocks and geopolitical tensions have rattled investor confidence. This turmoil has led many to wonder about the duration of the turbulence and how to manage their current holdings.
Frédérique Carrier, Head of Investment Strategy for RBC Wealth Management in the British Isles, reassures investors by pointing out that, while the recent market drop was substantial and swift, it is essential to remember that normality will eventually return. The timing might be uncertain, but the key to managing these markets is to stick to your existing plan.
Dean Moore, Managing Director and Head of Wealth Planning for RBC Wealth Management in the British Isles, emphasizes that what happens on a month-to-month basis is less critical than the desired results over the long term. The focus should be on not being distracted by short-term events.
Here are five strategies to help you achieve your wealth planning goals during market turbulence:
1. Strategic Annual Gifting: In times of increasing interest rates, strategic gifting can assist individuals in navigating a challenging mortgage market. Gifts may also be used to transfer investments into trusts, offering potential tax benefits.
2. Tax-Loss Harvesting: Market downturns can provide opportunities to exit undesirable investments and leverage tax allowances. Any losses incurred during such periods can help reduce the tax burden on future gains.
3. Diversification: Downturns in the market can hit hard, especially for investors with concentrated portfolios. Diversification, which includes various asset types, can help mitigate risk by reducing volatility.
4. Buying Low: Market downturns often result in lower security prices, offering potential buying opportunities. Investors with the means and resilience to purchase during these periods may benefit. It is advisable to use a series of tranches over time rather than trying to pinpoint the market’s lowest point.
5. Insurance: Life and health insurance play a crucial role in wealth planning, particularly for covering inheritance taxes. Rising interest rates may lead to lower insurance premiums, making it an ideal time to review or acquire policies.
The bottom line is that your focus should remain on your wealth planning objectives, rather than being driven by market fluctuations. By reassessing your strategies to align with your risk tolerance, goals, and timelines, you can confidently navigate turbulent economic markets. Remember to keep your long-term objectives in mind, as this is how you weather financial storms.
