{"id":1212,"date":"2023-02-02T00:00:00","date_gmt":"2023-02-02T00:00:00","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/2023\/02\/02\/how-to-support-the-next-generation-during-a-recession\/"},"modified":"2023-11-01T11:10:58","modified_gmt":"2023-11-01T15:10:58","slug":"how-to-support-the-next-generation-during-a-recession","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/insights\/how-to-support-the-next-generation-during-a-recession","title":{"rendered":"How to support the next generation during a recession"},"content":{"rendered":"\n

When talk of a recession intensifies, it’s natural to reflect on your financial position and think about how to secure the financial wellbeing of your family.<\/p>\n\n\n\n

For high-net-worth individuals \u2013 who often have complex wealth profiles \u2013 a recession can mean revisiting your wealth plans to ensure your children (and grandchildren) are adequately provided for. But before looking at what this means in practice, it\u2019s important to understand the context driving these decisions.<\/p>\n\n\n\n

<\/p>\n\n\n\n

What is a recession?<\/h2>\n\n\n\n

The word “recession” can often be emotive and unsettling. Yet while the popular definition is typically considered to refer to at least two consecutive quarters of economic contraction \u2013 or “negative growth” \u2013 in gross domestic product (GDP), <\/span>that definition has no official status<\/a>.<\/p>\n\n\n\n

\u201cIt’s understandable that talk of a recession can be alarming, especially because people will have memories of the recessions that occurred after the global financial crisis and at the height of the COVID-19 pandemic,” says Chris Wilson, an investment counsellor for RBC Wealth Management in the British Isles. \u201cNot to trivialise it in any way, but while recessions may have <\/span>implications for investments, they can be one of a series of market events and should be viewed as part of a bigger picture.”<\/p>\n\n\n\n

Wilson says that it’s at times like these that high-net-worth individuals turn to their <\/span>wealth managers<\/a>, who are familiar with all stages of the market cycle and are used to positioning wealth accordingly. \u201cThey can also provide comfort in the fact that recessions are typically much shorter than expansionary periods, and reinforce the need for a holistic, long-term view when it comes to planning for the next generation,” he says.<\/p>\n\n\n\n

This is a sentiment echoed by Nick Ritchie, senior director, Wealth Planning at RBC Wealth Management in the British Isles, albeit with an important caveat. “Planning is undertaken with clients’ long-term goals in mind and so short-term volatility shouldn’t necessarily result in a change in strategy,” he says.<\/p>\n\n\n\n

\u201cHowever, there may be immediate goals that a client, for whatever reason, has to achieve during a volatile period,” he continues. “So, while they may have an investment plan or an estate plan mapped out over 15\u201320 years, if they want to downsize a property or make a gift to a child in the next year, then they may need to consider the current macroeconomic environment and decide whether to pursue that course of action or delay the decision until conditions are more favourable.”<\/p>\n\n\n\n

Supporting the next generation: Five key considerations<\/h2>\n\n\n\n

It’s clear there is a balance to be struck when it comes to planning for the next generation during times of economic instability. Here are five key considerations:<\/p>\n\n\n\n

1. Don’t panic<\/h3>\n\n\n\n

It’s understandable that during volatile times, high-net-worth individuals will be concerned by multiple factors, such as asset protection, falling investments, rising interest rates, the possible erosion of wealth due to inflation and providing for children and grandchildren.<\/p>\n\n\n\n

\u201cDuring periods of volatility, pessimistic news is unavoidable. This can tempt clients to take action for action’s sake, with some tempted to make lots of changes, particularly if they’re concerned for the next generation,” says Ritchie. “It’s important they take a step back here and <\/span>look at the bigger picture<\/a> <\/span>before taking any action. That includes speaking to their advisor.”<\/p>\n\n\n\n

At this point, it’s helpful to be reminded of how the markets usually move. <\/span>U.S. recessions, for example, typically correlate with bear markets. But over the long term, as the graph below shows, markets have historically trended upwards, riding out any volatility. However, downturns or times of stagnation can last for protracted periods and should be factored in.<\/p>\n\n\n\n

Markets tend to ride out volatility<\/h4>\n\n\n\n
\"Performance

The line chart compares the value of four major equity indexes since December 1959 on a logarithmic scale, indexed to December 1959 = 100, and highlights recessionary periods. Values of all indexes fell during recessions. The indexes shown are the S&P 500 Index, S&P 500\/TSX Composite Index, FTSE All-Share Index, and MSCI Europe Index.<\/p>