Many wealthy individuals tend to rearrange their portfolios to protect everything in their possession. But usually, their strategies for preparing for such a recession differ from each person based on their risk tolerance.
Having worked with many HNWIs, a financial planner and senior vice president of Moors & Cabot, a wealth management company, Ashley Folkes said,
High net worth individual clients have a tendency to protect and then grow their wealth. We discuss how much undue risk you are wanting and willing to take in order to satisfy your goals,” Folkes said. “Currently, I’m seeing the conversations with investors shifting to a slightly more defensive stance.
In other cases, HNWIs prefer to make adjustments to their portfolios in anticipation of a market correction. They would explore moving into high quality fixed income or other alternatives, in effect providing ballast in a volatile equity market.
Consider some ways that HNWIs prepare for a recession:
HNWIs stockpile cash to maintain Liquidity
It’s a proven fact that moving fortune to cash is the most common way to ensure it’s not affected much during a recession and certainly outlast it.
The main way to survive and grow during recessions is to access liquidity, after all, “cash is king” as they say.
Hedge fund manager and billionaire Sam Zell of Equity Group Investments is also moving the assets under his management into cash, as he expressed to CNBC. He said,
We certainly never had a cash position as we have now. “I think we’re very reticent about the opportunity. We think there’s going to be some significant opportunities, but what we don’t see is the urgency.
HNWIs embrace Exchange Trade Funds to protect their Wealth
Exchange Trade Funds (ETFs) provide a low-risk way for HNWIs to stay in markets during increased volatility among equities.
For those who prefer to stay invested in equities until they know a recession is going to happen, they shift to index low volatility ETFs.
Some HNWIs that look to mitigate their risk, invest in dividend-paying companies that have proven historically they can handle periods of market weakness by having low debt and solid balance sheets.
HNWIs tend to Pay down Debts
HNWIs who haven’t reallocated their portfolios during a market correction are looking to refinance and pay off their debts while interest rates are still low. This trend is yet another effective way to save money in the long run.
HNWIs could simply pause and do nothing at all
Just like all recessions in the past, these can make people very anxious and nervous. If the circumstances arise, sometimes the best thing for HNWIs do to, is nothing at all.
Emotions can affect the way you handle your fortunes, that is why financial planners tend to advise wealthy individuals to not give in to emotions and stick to their initial plans in order to maximize the probability of reaching long-term goals.