Formulating a plan with the guidance of a financial advisor can help keep investors on track through the ups and downs of the markets.
Experienced investors know that the market is anything but predictable. Ups and downs, also known as market volatility, are to be expected.
However, when you see the value of your investments dropping, it’s natural to feel anxious. In fact, more than half (55 percent) of RBC Wealth Management clients are concerned about investment losses, according to the 2023 RBC WealthPlan Survey. Those who don’t have a solid wealth plan in place may react out of panic and sell assets at a loss, leading them to miss out on potential future gains.
“The markets are going to go where they’re going to go, but that doesn’t change an investor’s goal to retire or buy a boat or whatever they plan for their money,” says Brad Piermantier, head of Advisory Programs for RBC Wealth Management–U.S. “Having a focused plan for investing gives clients something to aim for, despite volatility in the market. Without a plan, it’s easy to go off the rails and either chase performance or steer away from appropriate risk.”
Rather than giving in to knee-jerk reactions, take steps to develop a strong wealth plan that includes strategies for managing market fluctuations. An experienced financial advisor can help you stay the course and remain focused on achieving your long-term investment goals.
When market volatility affects an investor’s portfolio, “emotions run high,” says Piermantier. Working with a financial advisor can help temper those emotions and help you view your portfolios through a logical, long-term lens.
During times of unpredictability, “clients may check in with their advisors to see how their portfolios are doing in relation to their plan, and they might make adjustments as needed, but they’re staying invested and staying on track,” Piermantier says.
Professional advisory services are a valuable approach to building an “all-weather” portfolio through fee-based programs. You and your financial advisor can discuss the right course of action and leverage options to customize the investing experience to meet your unique needs.
The following are four strategies many advisors use:
The largest contributor to the variability of a portfolio’s return over time is asset allocation, and a diversified mix can improve the risk-return profile. “No single investment will achieve a client’s goals,” says Piermantier.
Work with your advisor to make sure your portfolio’s allocation is right for your risk tolerance and long-term objectives.
Leaving a portfolio untended can actually heighten risk and impact investors’ ability to meet their goals. For example, a soaring stock market can throw your asset allocation out of balance, as gains from equities become a larger share of the portfolio.
Although it’s tough to walk away from potential high returns, a prudent move might be to rein in risk by shifting those equity gains into lower-performing assets. The resulting rebalanced portfolio can help limit exposure to future market volatility. Conversely, adding to equities after a sharp sell-off can be challenging if investors don’t have a course-correction plan in place.
Your advisor can help implement a consistent methodology to address practical challenges such as timing of trades and mitigating tax liability.
Tax-loss harvesting may reduce your tax bill by realizing losses to offset previously realized capital gains. For example, losses greater than $3,000 can be carried forward to apply against capital gains in future years.
There are some risks associated with tax-loss harvesting, as securities with losses may represent holdings that diversify your investments, in which case removing them could change the makeup of your portfolio. An experienced financial advisor can make recommendations specific to your situation.
If your investments lose value, especially early in your retirement years, those poor returns can have a significant impact on how long your retirement savings will last.
When you tap your portfolio as it’s decreasing in value, you have to sell more investments to raise a set amount of cash. Not only does that drain your savings more quickly, it also leaves fewer assets to generate growth and returns during potential future recoveries. This is known as the “sequence of returns.”
To avoid finding yourself in that situation, consider maintaining a short-term reserve of low-risk, liquid investments that you can use to cover your expenses during periods of loss, rather than selling stocks. You could also consider scaling back—or even skipping—a planned withdrawal. Avoiding the sale of investments when the market is down can potentially benefit your portfolio over the years.
These are designed to be long-term relationships between you and your financial advisor, who will take the time to get to know you, understand your goals and answer questions.
They’ll help you review your financial picture in light of changing circumstances—both personal and market-driven—and make adjustments as goals change across your investment lifecycle, including wealth accumulation, distributions in retirement and leaving a legacy.
Asset allocation and diversification do not assure a profit or protect against loss.
RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in consultation with your independent tax or legal advisor. No information, including but not limited to written materials, provided by RBC WM should be construed as legal, accounting or tax advice.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
We want to talk about your financial future.
Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.