Wealth planning considerations to help protect your portfolio from market turbulence

Your finances

How investors react during periods of decline is critical to their long-term success.


In times of market turbulence, investors may wonder how long the roller coaster ride will last, and whether they need to get off at the next stop.

Even some investors who have traditionally made all the right moves, such as investing for the long term and keeping their portfolios diversified, might find it difficult to keep their emotions in check.

It is important to remember that weathering market downturns and corrections is part of the wealth building process. Markets typically experience a 10 to 20 percent correction roughly every one to two years. Indeed, over the course of history, the financial markets have experienced many corrections—typically defined as a decline of at least 10 percent from recent highs—and each time, eventually recovered lost ground and moved to new heights.

Instead of making knee-jerk reactions during difficult times, investors should take time to consider their long-term plans and take deliberate steps that can further their long-term goals.

“We can’t control what’s going on in the market, but we as investors are not completely powerless,” says Angie O’Leary, head of Wealth Planning at RBC Wealth Management–U.S. “There are things we can do to strengthen our financial health in a down market.”

Consider these six important strategies that may make sense for you and your portfolio during market turbulence.

1. Revisit your wealth plan with your financial advisor

Even if you have a solid plan, you should be prepared for your net worth to take a hit, depending on your asset allocation. But as long as you stay invested, the loss is merely a paper loss, and doesn’t become a realized loss until you sell. History tells us that recoveries happen and the best offense is a good defense that holds the line.

So take this opportunity to ask big-picture questions about your wealth plan. Have your goals changed? Is your risk tolerance and time horizon still appropriate, and does your portfolio still have an appropriate level of diversification? Having this conversation with your financial advisor can help redirect your focus out of the short-term uncertainty and back to planning for the long-term instead.

2. Consider opportunities within your portfolio to tactically harvest losses for tax purposes and reposition your portfolio for growth

This can be especially impactful if you have realized gains and see an opportunity to trade up in quality, growth potential or even to better align your portfolio with your personal values.

3. Retirees and near-retirees should conduct an income check-up and revisit spending priorities

Market volatility can take an especially significant toll on those in or near retirement. That makes it critical to work with your financial advisor to understand how the market, inflation, taxes, interest rates and other risks could impact your nest egg and income needs.

Additionally, create a liquidity plan that includes an emergency fund as well as access to credit and lending. This can be a vital safety net if you’re unable or don’t want to tap into your other investments because they’re impacted by the market, or are more illiquid or inaccessible.

4. Consider a Roth IRA conversion

With a Roth IRA conversion, you convert some or all of your money in a traditional IRA into a Roth IRA, and owe income taxes on any funds you convert. A down market could be a good time to consider a Roth IRA conversion or partial conversion, because when your IRA’s value is lower, the tax liability of a Roth conversion would be reduced. Once converted, your assets grow tax free and your withdrawals in retirement are also tax free. Your financial advisor can help you assess if this strategy is right for you and your particular situation.

5. Lower your tax bill through charitable contributions

Giving to charity can provide personal fulfillment by supporting a cause you’re passionate about while providing income and estate tax benefits. For example, if you’re over age 70 ½, you could consider a qualified charitable distribution, where you can donate up to $100,000 from an IRA directly to a charity. This would help you reduce your income for the year by the amount of the donation (though you can’t take the charitable deduction for the donation).

6. Look at your estate value

Consider timely strategies that work well in down markets, such as annual gifting using depressed stock, or trust strategies such as a Grantor Retained Annuity Trust (GRAT), a type of irrevocable trust.

With a GRAT, a grantor transfers assets and then receives annuity payments over a specified term. When the payments end, the trust’s beneficiaries receive the remaining balance of the assets. If those assets in the GRAT appreciated faster than a rate set by the IRS, the appreciation will pass to the beneficiaries as a tax-free gift. For that reason, GRATs could be an effective tool during down markets to transfer assets in a tax-advantaged way while also reducing the grantor’s estate taxes.

The bottom line

Focus on your plan, not on the market. Don’t jeopardize your long-term investment strategy out of fear or other emotional decisions. If you’ve created a strategy that reflects your risk tolerance, time horizon and financial goals, and you make the relevant adjustments over time, you’ll give yourself the ability to look past today’s headlines.

RBC Wealth Management does not provide tax or legal advice. We can work with your independent tax/legal advisor to help create a plan tailored to your specific needs.

Past performance does not guarantee future results.

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.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

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