Portfolio Risk Management:
3 ‘Dos’ and 1 ‘Don’t’

During Times of Economic Turmoil, Focus on Controlling the Controllables

Stick to your plan.

How many times have we all heard that advice in recent days and weeks as the markets have been roiled by volatility and the odds of a looming recession has spiked? That said, sticking to a well-crafted portfolio strategy as part of an overall financial plan during times of economic uncertainty is challenging for even the most stoic of investors. With the “freight train” of a possible recession / market crash barreling toward us, it is understandable that many investors, particularly those who have more recently created significant wealth, may feel the urge to “step off the tracks” and sell or otherwise liquidate their investments. But what awaits you on the other side can be far more damaging. Let me give you an example:

In 2023, many economists, not unlike today, predicted a recession (some put the probability at more than 60%). Of course, that didn’t happen and the S&P 500 ended up gaining 26% in 2023 and then climbed another 25% in 2024. Investors who made an emotional decision and got out of the market at that time suffered a huge missed opportunity.

Over the past two decades, seven of the market’s 10 best days occurred within two weeks of the 10 worst days (source JPMorgan). In 2020, during the early days of the COVID-19 pandemic, the markets saw their second-worst day of the year on March 12. The next day, the markets saw their second-best day of the year. Imagine the damage and lost opportunity for investors who sold one day too early?! Even as recently as April of this year, the four market sessions leading up to April 8 sustained huge losses, only to have one of the biggest market rallies in many years on April 9.

With that historical framing in mind, many financial advisors and wealth managers essentially have no other advice to offer clients other than the ubiquitous “stick to your plan.” Do nothing. Wait. At Summitry, we don’t disagree that sticking to your plan is sound advice, but we also recognize there is an opportunity to be proactive and “control the controllables” where we can. During times of heightened volatility and market uncertainty, we make sure our clients are as protected as possible by doing the following:

1. Establishing the right asset allocation

Particularly for high-net-worth individuals, there is a broad array of asset classes to invest in, including stocks, bonds, real estate, private investments and a multitude of other alternatives. By constructing an asset allocation that leverages a variety of asset classes in a way that reflects a client’s unique goals, risk tolerance and time horizon, we provide a bulwark against even the most volatile of economic environments.

2. Controlling the quality of assets

Not all investments are created equal. Even with the right asset allocation strategy in place, conduct a careful review of the underlying businesses within a portfolio to ensure they are high-quality, well-run businesses that are positioned to navigate treacherous waters successfully and come out on top after any economic downturn.

3. Ensuring diversification within a portfolio

You may be an investor in 25 amazing businesses, but if they are all Bay area tech business, that’s not exactly great diversification. In addition to ensuring the businesses you invest in are high quality and leverage a variety of asset class strategies, it is essential that they are diversified across sectors, industries and geographies so your portfolio isn’t over-exposed to any specific risk factor.

1 Don’t: Trying to time the market

While the age-old advice to not try to “time the market” remains absolutely valid (few if any investors have a track record of doing this successfully with any sort of consistency over time), the strategies outlined above demonstrate that there are most definitely proactive steps that can be taken to ensure you are as prepared as possible for whatever market turmoil lies ahead. And remember the other fallacy of market timing – you have to be right twice, knowing when to get out and then knowing when to get back in, making this approach nearly impossible to do consistently well.

Yes, the current market environment can be anxiety inducing, but you don’t have to try and navigate it all alone. There is simply too much at stake to not have a seasoned financial advisor at your side to ensure your portfolio is designed to weather any economic storm, which leads me to my one ‘don’t’ … make sure you don’t “step off the tracks” for the wrong reasons.

Contact us to explore how your portfolio can be structured to withstand market volatility.

The content provided is for informational purposes only and does not constitute investment advice or a recommendation for any specific strategy. Individual results and advice may vary based on each client’s unique circumstances. Nothing herein should be interpreted as an offer to buy or sell any securities, or a solicitation to engage in any specific financial strategy. Investing in securities, including equities, fixed income, and alternative investments such as private equity and real estate, involves various risks. Please consult your financial and tax professionals for personalized advice, as each individual’s financial situation may require different recommendations and approaches. Opinions are subject to change without notice. Past performance does not guarantee future results, and investing involves the risk of loss, including the loss of principal.