Focusing on the long view for wealth planning tends to take a back seat when market volatility is affected by global pandemics or social and environmental issues.
While investors cannot control a turbulent market, they can control their strategies by taking a moment to reflect on the plans and goals that matter most for their family's future.
Volatile markets often give investors pause, but these life-changing moments also provide a chance to be introspective.
And while a sense of alarm or panic is a natural reaction to anxiety-inducing interruptions to daily life, introspection and planning seems to be the way forward, says Terence Chow, CEO, RBC Wealth Management–Asia. “We don't know what we don't know … something [disruptive] can always come out of left field, so always take the long view."
Whether it's volatility in the markets or unforeseen events occurring somewhere in the world, Chow believes that for any scenario, it's a phase that will pass.
"The key here is to be clear on what your objectives are and what your plan is for your family's wealth and legacy," he says. Chow also suggests investors work with a trusted advisor to execute the plan and remember to stick to it.
Vivian Kiang, managing director and head of RBC Wealth Planning and Fiduciary Services in Asia, says slowing down and staying in one place also may provide individuals with opportunities to consider things they didn't have time for in the past, such as reviewing plans they already have.
Stock markets will find their normal, eventually, and life will do the same. But Kiang sees such moments as opportunities for families to have these conversations and think about wealth and legacy within the context of short- and long-term planning.
“Family situations change," says Kiang. “How you feel about giving to your family or your society [may be] very different from the way you thought 20 years ago."
Here are five wealth planning strategies to consider during volatile markets:
1. Revisit your wealth plan with your financial advisor
Health, personal and financial, is at the forefront of everyone's mind. “Especially in a volatile environment, [people are] wondering do they have enough, have they saved enough? Are they prepared? What happens if their businesses don't quite get back to where they used to be? What does that mean? Do they need to sell their business? Are they looking at dipping into savings?" says Chow.
"The best way to weather the uncertainty is to take a step back, look at your financial health and review your plan for the way forward. That's where you see the opportunities," he explains.
2. Diversify your portfolio
Market downturns have a tendency to cause some investors to rethink their strategies, says Kiang, especially those with holdings concentrated in just a few types of assets. “Our recommendation, in general, is don't put all your eggs into one basket."
"Well-diversified portfolios that include cash holdings, as well as a combination of stocks, bonds and real estate from a variety of countries and regions, may help reduce volatility and mitigate risk," she adds.
Chow echoes the same sentiment: diversity is key. "For instance, if Asia is where you have generated a lion's share of your wealth and where you've built your businesses, your portfolio may already be quite concentrated in Asia," he says. "Then consider investments in Canada or the U.S. which are further away from your home market, consider all different types of dimensions to diversify the entire portfolio."
3. Build insurance into your plan to protect yourself and your legacy
Kiang says while insurance isn't known for high returns, it's times like these where having it in place can help ensure your family will be protected in times of need. But it also matters where that insurance originates.
“Investors should be putting a lot more effort into studying the background of the company and asking is it an insurance company that will survive 20 to 30 years after my lifetime?" says Kiang. She calls it a habit change – now is the time to do research and make sure the company is financially sound and capable of protecting future generations.
4. Look for strategic opportunities in a down market
“Tax-loss harvesting is not as strong of a focal point here in Asia because the effective tax rates are very low relative to other parts of the world, like Canada, the U.S. or UK," says Chow. “But to the extent that there are children, grandchildren in higher tax jurisdictions, there may be an opportunity there."
At its core, looking for strategic opportunities is part of a wider plan to generate, preserve and protect wealth for future generations. Work with your wealth planner to see where those opportunities lie.
5. Explore how charitable giving fits within your legacy
Chow says philanthropy is an emerging trend in the East, one that's driven by an increasingly globalized generation. “It's exactly these kinds of moments that help get families to take pause and realize it's not just about the rat race or making the next million or billion. It's about how do I make a difference in my family's lives? How do I make a difference in the communities that I grew up in and how do I give back?"
But Chow adds while a crisis may create an urgency related to philanthropy, it's important to be thoughtful, strategic and understand how that fits within the family legacy. “Pick causes that really resonate with you," he says.
The bottom line
The turbulent markets and life's disruptions are good reminders a long-term outlook is the best way to overcome short-term obstacles. Setting goals and consistently revisiting your plan can help weather the storm. Balance reaction with introspection because for family legacies, the future will always be unpredictable.
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