How To Survive A Recession – For High & Ultra-High Net Worth Eyes Only

When a recession happens, does your portfolio start tumbling? Does this make you think about changing your wealth manager, investments, or plan? 

As someone with high or ultra high net worth, the reality you should be aiming for is one of stability – even in the midst of recessions. It does you no good to lose tens of millions every time a recession happens, and then white-knuckle your way back to where you were and hope to hold on to your new gains.

If you want a better experience in the next recession, Pillar Wealth Management has one. Get a glimpse of it by scheduling a free introductory call with one of our founding wealth managers.

If you have more than $10 million, you can also find out what you should be looking for in any financial advisor or wealth manager using The Ultimate Guide for Choosing the Best Financial Advisor for Investors with $10 Million – $500 Million Liquid Assets.Get your free guide here.

Now, whether all this nervousness about recessions has any basis in reality is irrelevant. It often seems that people think a recession is coming, if for no other reason than it’s been a while since the last one. But the fact remains that at some point, the market will peak, and then head into a period of decline.

Whether that decline lasts only a few months, a year, or even 10 years, the question is, what will happen to your high net worth or ultra-high net worth portfolio? Yes, when times are good, it’s easy to say you’ll hold everything and won’t sell when a recession hits.

But this is a reckless strategy and no advisor, or individual, should be exposing you to undue risks. When you see your balances cratering by 20%, 40%, or 50%, then chances are you won’t be able to stand it.

Especially for retirees and near-retirees, just holding on and trying to wait out a recession is reckless.It is hazardous, knowing they might not have time to recover their losses. In past market downturns, investors and big firms alike have gotten clobbered, sometimes seeing 50+% drops in their portfolios.

What you want to do first is ignore bad advice coming from discount brokers and big banks, and anyone else who tells you to just ‘hold on’ and ‘wait it out.’ Second, you also want to avoid making those kinds of decisions yourself.

The Recession Worry Sequence

Here’s the 3-step worry-sequence that happens when the market has been going up for a while:

1.Risk Complacency Sets In

Investors – including big banks and money managers – get repeatedly pulled away from smart investing by greed and their own ignorance. Deep down they know markets don’t always go up.

But because growth has been happening for so long and because they don’t stay fixated on long term goals, their investment choices turn sour. This happens in part because they have no bedrock guiding principles holding their feet to the fire and that commit them to a completely customized plan for each of their clients.

A plan that builds into itself the level of risk appropriate for each investor. This is how Pillar Wealth Management’s process works. We are not beholden to market gyrations. We are beholden to our clients’ plans, which are based on over 100 years of historical data and an acceptance of what we call ‘the dark staircase.’

Investing is like standing at the top of a dark staircase. You don’t know exactly where the next step is, or where the staircase leads, or how long it will take to reach the bottom. Working with any wealth manager who thinks they can time the market, or who doesn’t acknowledge the unpredictability of life and the unknowable future puts your portfolio at high risk during a recession.

Those sorts of managers use a cookie-cutter approach and apply the same processes for all their clients. You can see evidence for this complacency toward risk in the fact that one of the causes of the Great Recession – mortgage backed securities and all their variations – are already making a comeback just ten years later. Mistakes get repeated.

2.Asset Allocations Veer toward Higher Risk and Aggression

Before the Recession, you saw some investors walking around with portfolios built from almost 100% equities. After the Recession, those investors melted in panic and terror as they lost 40 – 70% of their value.

After a recession subsides, we see the same pattern re-emerge. Higher and higher percentages of investor portfolios are being allocated toward equities. We see high net worth investors with 70%, 80%, and 90% of their assets now invested in the stock market.

You’re being placed in the same non-customized bucket as thousands of other investors, with little to no concern being given toward the fact that undue risk could be putting your high net worth portfolio in great peril when the next recession hits.

Again, this happens in part because big banks and many other financial advisors aren’t operating out of bedrock principles. Rather, they’re ‘going with their gut’ and trying to beat the market. They’re reacting to a decade of growth, and forgetting the reality that economies expand and shrink with regularity.

One advisor interviewed by CNBC even said, “The best solutions will come from investing in management practices and having advisors act as experts on undervalued assets.”

Did you catch that? That’s a fancy way of saying, ‘your financial advisors are really good at picking stocks and beating the market, so let them do their job and you’ll be fine.’ That’s exactly what led to such panic and heartache in 2008.

It was the big banks and brokerage firms that led the charge into 50% losses. It was using their own supposedly educated and expert methods that produced such astounding declines. They just pile everyone into pre-set buckets, with no regard for specific lifestyle goals and needs. Then, they throw up their hands when everyone loses money all at once.

They’re heading in that direction again. Don’t go with them.

See 5 shifts to maximize portfolio growth.

3.The Market Declines; Chaos Ensues

When investors get nervous, they turn to their financial advisors for help. In one six-month period when there had been no recession for about ten years, according to Schwab, 82% of financial advisors had to reassure clients about their financial plans. Investorsget nervous even when things are fine.

And this is where chaos can either be accelerated or averted. What does your advisor say when you tell them you’re worried about a possible recession and the market hitting its peak? What should they say?

To answer this critical question, we actually need to back up a bit. Earlier, we referenced the concept of bedrock principles, founded in a plan built on over 100 years of historical data, and centered on the achievement of long term lifestyle and retirement goals.

In other words, you need a financial plan and investments that have been engineered for the long haul. And which assume there will be volatility and recessions in the interim. This is the answer to the question.

Are you nervous about recessions? Does your advisor have a plan that has prepared your portfolio in advance, or is their strategy to just ‘hold’ and wait it out? More importantly – shouldn’t you change your financial plan so you can ride out the next market downturn?

If your plan and investments are structured the way ours are built, the answer is simple:

No. You shouldn’t change your plan or investments. You don’t need to be nervous. And you are prepared for it. 

Let’s explore how this works from five angles.

How Not to Build a Financial Plan

You cannot build a firm, assured, and highly confident investment and financial plan based on emotions. Fear about the current or future market situation. Anxiety about how your money is or will be performing. Uncertainty about the future.

Apprehension about investments. Lust for the highest possible gains, higher than your friends make, and higher than the market. Overconfidence that you or your advisor knows how to time the market. See why timing the market doesn’t work

All of these destructive emotions lead people – and big banks and brokerage firms – to make terribly costly investment decisions.See the emotions you should feel from having a wealth manager.

Don’t Concern Yourself with Present Day News

The DOW is up. The NASDAQ is down. The S&P 500 is flailing. No, it’s booming. No, it’s, it’s, it’s… it’s just sitting there. What else is on?

It doesn’t matter what happens day to day. It is completely irrelevant.

And most financial advisors know that. But here’s the related truth: It also doesn’t matter when a recession happens or a downturn occurs. You may not realize this, but recessions happen usually once or twice per decade. The2010s were a recession-free decade. That’s the anomaly, not the norm.

If your financial plan is built the way we’re describing, you don’t worry about recessions. Just like you can ignore the daily financial news, you can ignore recessions. Yes, you can ignore the entire recession.

And this is true even if you’re retired already. As a high net worth retiree living off a plan of the sort we’re describing, you can continue living a worry-free retirement. You too can ignore recessions.

Anticipate Craziness and Recessions

Don’t be surprised when recessions hit. Be surprised when they don’t.

It’s a shifted perspective grounded in normal reality, and it will enable you to see the wisdom behind our innovative, data-driven financial planning process.

You see – the goal of your financial plan isn’t to somehow find that special, secret, highly sought-after combination of investments and market timing that helps you outpace everyone else, defy the norms, and be impervious to downturns.

See how to improve your portfolio performance even in a recession.

The goal is to have financial serenity that lasts the rest of your life.

Craziness will happen. But as long as it doesn’t derail your plan, and your portfolio remains on track, you don’t have to worry. You can ignore the craziness and keep enjoying the life your wealth has made possible.

Build an Investment Plan that Exceeds Your Goals Beyond Your Lifetime

Many people worry about running out of money before they die. Including high net worth and ultra-high net worth people.

But when you can be shown with 100 years of historical data that you’re on track to achieve or exceed your goals, then you will have a much easier time resting easy.

If a recession hits, but your updated data still shows your portfolio to be on track to exceed your goals, then you can ignore the recession. Why? Because the recession will end someday. And since your goals are still on target, the recession doesn’t matter.

What If Your Plan Falls Short in a Recession?

What happens if this customized plan and our quarterly updated investment and personal data that supports it reveals that, recession or not, your portfolio has fallen out of alignment with your goals?

Certainly this is possible. You might have a medical crisis in your family. You might suffer a sudden loss in business valuation you were counting on. You might lose money in a recession. Things happen that are beyond your control.

The solution to this is simple. This is why you need a 100% customized financial plan. Lots of wealth managers say they customize plans. If that’s true, then why does almost every high net worth person who comes to our San Francisco Bay Area office show us a portfolio created by their previous advisor broken into a cookie cutter mix of stocks/bonds ratio?

Customized?

Pillar Wealth Management creates truly customized plans, built around your finances, liquid and non-liquid assets, family situation, and short and long term lifestyle and retirement goals. And unlike most other advisors and big banks who create your plan and then bury it in a drawer somewhere, we re-examine and adjust your plan every quarter – four times per year.

It’s customized, and then it’s maintained as life changes. Schedule a free call with a wealth manager.

So, if during one of these quarterly analyses your portfolio is revealed by the data to be falling short of your goals, we simply make a few targeted minor adjustments to get it back in line. In other words, we take a scalpel and tweezers to your portfolio and fine-tune a couple areas.

Then, we rerun our customized process to develop revised recommendations that confirm that you’re back on track to exceed – not meet – all your long term goals again.

Our personalized advice adapts to you. It adapts to your ever-changing life situation, shifting priorities, growing finances, age, and yes, market conditions. If market conditions got so bad that your goals were now not being exceeded, that’s the only time we wouldn’t be able to ignore a recession.

Do you seek financial serenity like we are talking about here?

If you’re a high net worth or ultra-high net worth investor click the button below and let’s have a free no-obligation call.

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