Five wealth-planning strategies for turbulent markets

Wealth protection
Insights

Turbulent economic markets can often lead to fear and anxiety amongst investors. These tactics can help you navigate those tougher periods.

Share

Economic markets can be fickle beasts. But when volatility strikes, that’s the time for investors to remain calm.

From tighter financial conditions aiming to combat inflation, to international conflicts and heightened geopolitical tensions, investors’ confidence in financial markets is often at the mercy of a tumultuous global landscape. This can leave many wondering what to do with their current holdings.

Concern in such circumstances is normal but doesn’t make it warranted. Markets regularly experience strong pull backs, such as in 2008 following the global financial crisis.

“Drops in the market are relatively common and eventually normality will return,” says Frédérique Carrier, managing director and head of Investment Strategy for RBC Wealth Management in the British Isles. “Only the timing is in question.”

The key to managing these markets is to stick to an existing plan. “What happens month-to-month is less important than the desired result in 15 or 25 years. It’s about not being distracted by short-term events,” says Dean Moore, managing director and head of Wealth Planning for RBC Wealth Management in the British Isles.

One way to stay on track is to turn your attention to where you can make a difference. “You can’t control the market, but you can control your strategy,” Carrier says.

Here are five strategies that can help you achieve your wealth-planning goals despite market turbulence:

1. Tax-loss harvesting

A drop in the major stock market indexes can present individuals suitable opportunities to exit an investment that’s no longer desirable and take advantage of tax allowances. “In the past, if you sold an investment, you may have paid capital gains tax,” Moore says. “But a market drop may change that. Any losses incurred can be used to reduce the tax burden on future gains.”

2. Diversification

Downturns in the market can hit some investors hard, especially if their holdings are concentrated in a few types of assets. As a result, these kinds of portfolios can experience significant turbulence.

However, a well-diversified portfolio – holding many different types of assets – may help mitigate risks by reducing volatility. “We had advised our clients going into the COVID-19 pandemic to have a defensive portfolio with an allocation to a variety of sectors given the business cycle was in its late stage,” Carrier says. “A defensive portfolio is a way to weather turbulence.” Typically, diversified portfolios include stocks from a variety of countries as well as bonds, cash and real estate.

3. Buying low

One possible upside to a drop in the market is that most prices for securities are lower. That will include some financially strong firms that will emerge and prosper once the storm passes. Some will be selling for bargain-basement prices. Investors who have the available cash and the resilience to buy during a period of uncertainty may be able to profit.

However, the timing of when to buy can be tricky. “It is difficult to know where exactly the bottom of the market will be,” says Carrier. “Using a series of tranches where you don’t go all-in on a single day, but do so over a period of time, can be beneficial.” This technique means investors don’t have to pinpoint the day the market reaches its absolute low.

4. Insurance

Life and health insurance are integral to wealth planning and frequently get used to help cover inheritance taxes. Rising interest rates can lead to lower premiums, particularly for whole of life cover.

“When markets are down, it can be a good time to review your existing policies or arrange new cover to lock in favourable rates,” Moore says.

5. Strategic annual gifting

Increasing interest rates can often mean those looking to buy a home require a higher deposit. Making gifts in this scenario can be a good way to help children navigate a difficult mortgage market.

“We’ve also seen clients taking advantage of lower markets to transfer investments into trust, perhaps to contribute toward their grandchildren’s school fees,” says Moore. “As assets grow, the gains can be captured inside the trust and be free from inheritance tax.”

The bottom line

Your plan – not the market – should be your focus. Instead of reacting out of fear, review your strategies to make sure they reflect your current risk appetite, goals and timeline. And make adjustments where necessary.

“Have your objectives in mind and make sure your tolerance for risk is in line with what you told your advisor,” Carrier says. “That’s how you weather storms.”

Let’s connect


We want to talk about your financial future.


Important information: This document contains general information only. It is not intended to be specific investment advice or an investment recommendation. Please bear in mind that the investments or services contained within this document may not be suitable for all investors. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. The tax treatment depends on the individual circumstances of each client and may be subject to change in the future. If you have any questions regarding the topics discussed in this article please speak to your Relationship Manager, or Investment Counsellor.

This publication has been issued by RBC’s Wealth Management international division in the United Kingdom and the Channel Islands which is comprised of an international network of RBC® companies located in these jurisdictions and includes RBC Europe Limited and Royal Bank of Canada (Channel Islands) Limited. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by RBC’s Wealth Management international division.

This publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, the value of investments and income arising can go down, future returns are not guaranteed, and an investor may not get back the amount originally invested. Countries throughout the world have their own laws regulating the types of securities and other investment products and services which may be offered to their residents, as well as the process for doing so. As a result, any securities or services discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.

This material is prepared for general circulation and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law none of the entities which comprise the international division of RBC Wealth Management nor any of their affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Wealth Management.

Clients of RBC Europe Limited may be entitled to compensation from the UK Financial Services Compensation Scheme (FSCS) if it cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. For further information about the compensation provided by the FSCS scheme (including the amounts covered and eligibility to claim) please refer to the FSCS website FSCS.org.uk. Please note only compensation related queries should be directed to the FSCS. Royal Bank of Canada (Channel Islands) Limited is not covered by the UK Financial Services Compensation Scheme.

RBC Europe Limited is registered in England and Wales with company number 995939. Its registered office is 100 Bishopsgate, London EC2N 4AA. RBC Europe Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Royal Bank of Canada (Channel Islands) Limited (“the Bank”) is regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank’s general terms and conditions are updated from time to time and can be found at https://www.rbcwealthmanagement.com/en-eu/terms-and-conditions. Registered office: Gaspé House, 66-72 Esplanade, St. Helier, Jersey JE2 3QT, Channel Islands. Deposits made with Royal Bank of Canada (Channel Islands) Limited in Jersey are not covered by the UK Financial Services Compensation Scheme. Royal Bank of Canada (Channel Islands) Limited is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for ‘eligible deposits’ up to £50,000 per individual claimant, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the Government of Jersey’s website http://www.gov.je/dcs or on request.

Investment services offered by the Bank are not covered by an investor compensation scheme as there is currently no such scheme operating in Jersey, however ‘eligible deposits’ held pursuant to investment services may be protected under the Bank Depositors Compensation Scheme described above – for more information see the Bank’s general terms and conditions. Some of the products that the Bank might recommend to you could be registered overseas and may be covered by a local compensation scheme. Your investment counsellor will provide you with the details of any overseas compensation schemes (where applicable) at the time of making an investment recommendation.

Copies of the latest audited accounts are available upon request from the registered office.
® / ™ Trademark(s) of Royal Bank of Canada. Used under licence.


Related articles

Retirement planning: Thinking beyond the basics

Retirement 8 minute read
- Retirement planning: Thinking beyond the basics

Do you have an insurance plan? Tips for protecting your family wealth

Wealth protection 6 minute read
- Do you have an insurance plan? Tips for protecting your family wealth

Financial planning tips to help high-net-worth individuals achieve greater security

Financial literacy 8 minute read
- Financial planning tips to help high-net-worth individuals achieve greater security