Succession Planning: Preparing for the Expected or Unexpected

High inflation. Rising interest rates. Supply-chain issues. Recession. These subjects have dominated headlines lately, sending markets into a tailspin they haven’t been able to pull out of in recent months. 

Increased market volatility has forced investors to seek cover, only to find there’s really nowhere to go. Most of the time, investors can shift to bonds when stocks drop, and vice-versa. But both equity and bond markets have been hit hard this year, leaving investors asking, “Where are the current opportunities for growth?”

While there is no one-size-fits-all answer, some asset classes are more attractive than others in the current market environment. For example, lower-duration fixed-income investments could be a good option due to rising rates globally, particularly in the U.S. And high-quality companies that pay a dividend and own a strong balance sheet may be better suited to weather a potential recession. 

Sophisticated investors can also explore an expanded array of options. One example is opportunity zone funds, which were created by the Tax Cuts and Jobs Act of 2017. These funds provide tax incentives for investments in 8,700 lower-income areas covering all 50 states, Washington, D.C. and U.S. territories.

Hedge funds are also an attractive option, particularly as the Federal Reserve remains aggressive and intent on raising interest rates. Look for other sectors that also tend to remain steady as interest rates rise, including financials (such as banks and insurers), consumer staples and health care.

The Risks of Going It Alone

That said, the best thing investors can do in the current market environment is work with a financial adviser. A do-it-yourself approach in a bull market is challenging; after all, it’s easier to pick winners when the bulk of investment classes are on an upward trajectory. Building a portfolio becomes more difficult when markets turn volatile, especially when you can no longer simply shift between stocks and bonds because neither asset class is performing well.

But here’s the rub: It’s difficult—if not impossible—to predict when a market downturn will happen. That’s why proper asset allocation is just as important when times are good as it is when times are bad. A financial adviser can assist with allocating your portfolio to align with both current market conditions and your financial goals.

Taxes are also a significant issue for a growing number of individuals and families in the U.S. The recent Inflation Reduction Act includes tax increases on households with incomes over $400,000. Proposed legislation calls for increased taxes on capital gains and estate taxes, both of which would especially impact high-net-worth individuals and families. 

Your adviser can help you plan for—and potentially offset—rising taxes, deploying strategies such as tax-loss harvesting, charitable giving and bunching deductions. Like choosing your own investments, these are tactics anyone can use. But if they’re not implemented correctly, you could end up creating a host of issues, including an increased tax bill.

Given the current market climate, we recommend scheduling regular conversations with your financial adviser, tax planner and/or accountant. Frequent reviews of your portfolio and overall financial situation are crucial, particularly as the economic environment continues to shift. Conversations with your financial professionals should not just be about hitting a specific number; instead, they should be focused on your goals and implementing strategies to reach them.

Your adviser can also serve as a touchstone, reminding you of your goals when you’re tempted to let emotions drive your financial decisions. This is especially important as markets remain volatile, which we expect to happen as we head towards 2023. For now, we recommend patience and persistence as we wait for markets to turn around.

This content is provided for informational purposes and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation.