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The Importance of Liquidity in Financial Planning for High-Net-Worth Families
EP Wealth’s Colton Peck, CFP®, discusses how liquidity planning can help high-net-worth families manage cash flow, investment opportunities, and...
EP Wealth Financial Planning Manager, Eduardo Ramirez, CFP®, shares insights on investment strategies that may help investors manage wealth during periods of economic uncertainty.
Preserving Wealth During Economic Uncertainty
Economic uncertainty can trigger emotional responses that might affect investment decisions. When markets become volatile, many investors react by selling assets at a loss, fearing further declines—only to miss out when markets recover. But recessions are difficult to label in the moment. Is the market experiencing temporary volatility, or are there systemic economic issues at play?
This is where working with an investment advisor can help. It pays to pause and reassess the situation before making decisions. An advisor provides an objective, unbiased perspective, helping investors remain focused on long-term strategies rather than reacting to short-term uncertainty.
Avoiding the Mistake of Overreacting to Bad News
One of the most frequent mistakes investors make is overreacting to negative headlines, which can lead to hasty portfolio decisions. A clear example of this happened in 2020 during the COVID-19 pandemic. The S&P 500 fell about 30% in just one month, leading many investors to sell at a loss. However, just six months later, the index had already recovered to its pre-pandemic levels. Investors who exited the market during the downturn may have missed out on much of the recovery.
Recessions typically have a limited lifespan. Historically, most recessions last between 2 and 18 months, with an average duration of about 10 months. Given this, the focus should not be on reacting to short-term fluctuations, but on selecting investment positions with longer time horizons that align with financial goals.
While the economy is outside of our control, what we can control are the strategies we use to navigate uncertainty and support our clients’ long-term plans.
Possible Indicators of an Economic Downturn
Rather than reacting to individual market events, it’s useful to look at broader economic indicators. Some factors that EP Wealth advisors and portfolio managers use to get insight into economic conditions include:
No single indicator tells the whole story. For example, while an inverted yield curve might suggest recession risks, strong GDP growth and low unemployment could indicate economic stability. That’s why we look at these indicators collectively to identify potential patterns rather than relying on any one metric.
EP Wealth Investment Strategies Start with the Client’s Financial Plan
Before discussing specific investments, we always start by understanding the client’s financial plan. Investment strategies should be built around financial goals—whether that’s planning for retirement, funding education, purchasing a home, or another long-term objective.
Markets will fluctuate, but our approach focuses on building portfolios designed to outlast economic downturns rather than attempting to predict them. The right investment allocation is one that remains aligned with personal financial goals, regardless of market conditions.
Diversification Strategies for Economic Uncertainty
Diversification is a common strategy for managing market fluctuations. Stocks and bonds tend to complement each other in terms of risk-return profiles, with bonds potentially performing well when stocks struggle and vice versa. Alternative investment strategies could offer additional diversification opportunities, potentially providing returns even when both stocks and bonds face challenges.
The idea behind diversification is that the sum is greater than its parts. By combining different investments with uncorrelated returns, it may be possible to create a portfolio that helps manage risk over time.
Taking the Long View
If my years of experience have taught me anything, it’s that it’s really hard to try to time or beat the market. Instead of trying to predict short-term movements, looking at investments over complete business cycles can provide better insight into potential performance patterns. Maintaining this perspective during market declines can be emotionally challenging, but historically, investors who take the long view tend to be in a stronger position over time.
While economic uncertainty is inevitable, investment strategies can be structured to help withstand these fluctuations. The key is to stay focused on long-term financial goals rather than reacting to short-term volatility.
Contact an EP Wealth advisor to learn more about creating an investment strategy designed to manage wealth during periods of economic uncertainty.
DISCLOSURES:
- 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.
- 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.
- 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 that any direct or implied results or projections being represented here will be met or sustained.
- 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.
- 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.
