Learn strategies high-net-worth investors can use to build resilience against financial and market risks while aligning with personal goals. 

How to Build Resilience Against Financial and Market Risks

Periods of market volatility and unexpected portfolio challenges can place even significant wealth under pressure. Without a risk management plan designed to help absorb these shocks, investors may face forced sales, tax complications, or other outcomes that undermine long-term plans.

These are some of the key strategies that can help reduce vulnerabilities and strengthen resilience against market risk and other risks to your portfolio:

• Establish an Investment Policy Statement (IPS) and Governance Framework
• Build Flexibility with Liquidity
• Manage Concentrated Holdings
• Diversify Across Public and Private Markets
• Implement Consistent, Tax-Aware Rebalancing
• Use Stress Testing to Anticipate Risks
• Plan for Estate and Tax Liquidity Early
• Strengthen Custody and Counterparty Protections 

What Can Go Wrong Without an Effective Risk Management Plan

Without a clear risk management framework in place, high-net-worth individuals may encounter challenges such as:

• Forced sales of assets during market downturns
  When markets fall, a lack of liquidity reserves may require selling investments at depressed prices, locking in losses.
• Liquidity shortages when covering large financial obligations
  Significant expenses such as real estate purchases, private investment commitments, or sizable tax bills can require immediate access to cash. Without advance planning, investors may be forced to sell long-term holdings at unfavorable times to meet these obligations.
• Concentrated stock or business holdings
  When a large share of wealth is tied to a single company through equity compensation, inherited shares, or ownership of a private business, a decline in that asset can disproportionately affect overall net worth.
• Family conflict due to unclear financial decision-making processes
  Significant wealth often involves multiple stakeholders. Without governance structures, families may experience disputes over strategy, spending, or succession, which can undermine both relationships and financial outcomes.
• The need to sell assets to cover estate taxes or settlement costs
  Estate tax obligations can require immediate liquidity. Inadequate planning may force the sale of businesses, real estate, or concentrated investments that families had intended to preserve.

8 Strategies for Staying Resilient Against Market Risks

1. Establish an Investment Policy Statement (IPS) and Governance Framework

An Investment Policy Statement acts as a guiding document for your wealth. It sets out objectives, acceptable levels of risk, liquidity needs, and tax considerations. By spelling these out in advance, decisions are made against a defined framework rather than in reaction to headlines or short-term swings in the market. This helps reduce the temptation to abandon a strategy during periods of stress.

For families managing wealth across generations, establishing governance structures such as investment committees and charters can also be valuable. A clearly documented decision-making process — including who has authority, how often reviews occur, and how disagreements are addressed — can help reduce the risk that conflicts derail a long-term investment strategy. It also provides continuity when wealth transitions from one generation to the next, giving future decision-makers a clear structure to follow.

2. Build Flexibility with Liquidity

Liquidity provides flexibility in uncertain times. A tiered approach—spanning from cash and near-cash to short-term investment-grade bonds—helps cover spending needs, large tax bills, or unexpected obligations while leaving long-term investments intact.

Different accounts and institutions provide varying levels of protection for your cash and cash alternatives. FDIC insurance covers bank deposits up to established limits, and SIPC protection applies in the event of a brokerage failure, though it does not cover investment losses. Multi-bank sweep programs extend FDIC coverage by dividing deposits across several banks, which can provide broader protection for large cash balances. Combining these protections with a disciplined liquidity plan reduces the risk that sudden financial demands disrupt an investment strategy.

3. Manage Concentrated Holdings

When too much wealth is tied to one stock or a single private business, the overall portfolio becomes highly sensitive to the performance of that one asset. If it falls in value, the impact on total net worth can be far greater than in a diversified portfolio. A common rule of thumb used by investors is that the likelihood of steep losses rises once a single position makes up more than about 20% of investable assets.

There are several ways to reduce this risk while still respecting tax considerations or restrictions on selling. Some investors gradually sell shares over time, often through pre-set plans that help avoid the temptation to time the market. Others may look at tools such as exchange funds, which allow investors to swap a concentrated holding for a share of a more diversified pool, or hedging techniques that provide downside protection.

Charitable giving strategies can also help reduce exposure to a single stock while supporting philanthropic goals.

The right approach depends on personal circumstances, but the goal is the same: limit the risk that one company or asset can disproportionately affect long-term wealth.

4. Diversify Across Public and Private Markets

Diversification across multiple sources of return can help dampen volatility. Public markets provide liquidity, while private markets (including private equity, credit, or real estate funds) may offer growth opportunities, though often with longer holding periods. High-net-worth investors can benefit from setting clear limits on illiquid allocations to avoid being forced to sell long-term assets under unfavorable conditions during stressed periods.

5. Implement Consistent, Tax-Aware Rebalancing

Over time, market movements cause portfolios to drift away from their intended mix of investments. Rebalancing brings the portfolio back in line with long-term targets and helps prevent it from becoming unintentionally riskier or more concentrated than intended.

There is no single “best” rebalancing schedule, but consistency matters. Some investors review allocations on a set timetable, such as twice a year, while others act only when an asset class moves beyond a defined range, referred to as a drift threshold.

Taxes and transaction costs also play a major role in rebalancing decisions. Selling appreciated assets may trigger capital gains, so investors often weigh the benefits of rebalancing against the potential tax impact.

6. Use Stress Testing to Anticipate Risks

Stress testing evaluates how a portfolio might hold up under difficult conditions before those conditions occur. By modeling scenarios such as sharp equity declines, rising interest rates, or a squeeze on cash flow needs, investors gain insight into where their portfolios are most vulnerable. Identifying these weak points in advance creates the opportunity to be proactive in making adjustments to your portfolio rather than reacting under pressure.

7. Plan for Estate and Tax Liquidity Early

Estate and gift taxes can be substantial, and if liquidity has not been arranged in advance, heirs may be forced to sell assets at unfavorable times to raise the necessary funds. This can be especially disruptive when wealth is concentrated in real estate, private business interests, or other illiquid holdings.

One way families prepare is by arranging for liquidity sources that are separate from their core investments. For example, irrevocable life insurance trusts (ILITs) are often used to create a pool of funds that can be directed toward estate taxes or other settlement costs.

8. Strengthen Custody and Counterparty Protections

Assets are vulnerable if custodianship and safeguards are weak. Regulated custodians, such as banks and brokerages, must keep client assets separate from their own, submit to audits, and follow oversight requirements. FDIC insurance protects bank deposits, and SIPC covers brokerage failures, though not market losses. Some firms provide additional protection, while newer areas like cryptocurrency custody involve fewer safeguards and require closer review.

Counterparty failures — such as a custodian becoming insolvent or mismanaging client funds — can put assets at risk, which is why evaluating these protections is an important part of wealth planning.

How EP Wealth Advisors Can Help with Planning

Building resilience against financial and market risks involves coordination across investment management, estate planning, and tax considerations. EP Wealth Advisors can:

• Assist in developing an IPS that reflects your goals and circumstances
• Help build liquidity strategies designed for both short-term needs and long-term planning
• Guide diversification, rebalancing, and concentration management approaches
• Work alongside estate and tax professionals to anticipate liquidity needs
• Conduct ongoing stress testing and portfolio reviews

By partnering with experienced financial advisors, you can pursue strategies designed to support both near-term flexibility and long-term wealth preservation. Contact an advisor near you to get started.

DISCLOSURES

• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the advisor has attained a particular level of skill or ability.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made so that any direct or implied results or projections being represented here will be met or sustained.
• The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or guarantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• The content of this report is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions, including changes to retirement benefits, social security, and/or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.