How can I protect my family’s wealth during turbulent times?

Concerns about family wealth during times of market turbulence are completely understandable. The disruptive economic conditions of the past few years, which have brought inflation and rocketing interest rates in some markets, can be unnerving for those used to calmer times. Families work hard to build their wealth and the thought of it being threatened by economic disruption can be an unpleasant experience. Protecting family wealth during periods of extreme market turbulence is best achieved by being prepared and then staying calm. Only thinking about the problem when it arises will always be a poor strategy. Robust financial planning needs foresight and clear thinking.

Diversification and a long-term outlook are the cornerstones of any successful investment strategy. Those who implement this strategy should have less need to panic when the market gets rough. Diversification requires that anyone looking to protect their wealth spreads out their risk and ensures that they are invested in a variety of different assets. This varied approach is designed to make sure your wealth is less concentrated and therefore less vulnerable. Long-term thinking is something that has been recommended by successful investors and encourages picking a strong strategy and sticking to it, even during a difficult market.

Riding out the storm

Some of the merits of this thinking can be seen through a passing glance at the behaviour of prominent stock markets. There have been several significant stock market crashes over the past 25 years, including the bursting of the dotcom bubble in the early 2000s, the global financial crisis of 2007-08 and the damage inflicted by the Covid-19 pandemic more recently. The sharp troughs in prominent global stock indexes like the S&P 500 and the FTSE 100 provide a stark reminder of tough times. But the overall trend in these markets, which are designed for diversification, is that dips are followed by recovery and overall value increases over time. Those that bought and held popular baskets of stocks 25 years ago would be more satisfied with their returns than those that sold when times got tough.

But when it comes to managing family wealth, stock markets are only a part of the picture. Widening your asset base beyond stocks is advisable for sounder wealth management. A diversified bond portfolio can act as a strong balance against the uncertainties of the stock market. Some stocks can act as an inflation hedge, but assets such as property or infrastructure can also provide inflation-linked uplifts in income. Investing a portion of assets to protect your wealth against inflation is often advised, as is ensuring you have a good geographical split. Holding cash in a variety of different currencies can also reduce the likelihood that any one market will have too many adverse effects on your wealth. Overall, talking to your wealth manager about the full spectrum of potential investments will ensure that your wealth is not too heavily concentrated and better protected.

Little and often

There are other things you can do to help maintain, or even boost, your family wealth during times of turbulence. Drip-feeding regular investments into the markets, rather than sitting on a lump of cash and waiting for the best time to invest, can help ride out the volatile periods. Known as pound-cost averaging, the argument for this approach is that you won’t be entering the market at one level. Investing in regular, smaller amounts means you are buying in at multiple price points that can help smooth out those bumpy periods over the long term. This strategy may seem conservative to those looking for higher returns, but it could ultimately prove to be the more sensible option.

When putting together your portfolio, a good wealth manager will make it a priority to fully understand your attitude to risk and long-term financial goals, including how you would like to approach retirement planning. This will dictate how your portfolio is split in terms of assets, geography and time horizons. A London & Capital, we believe this groundwork can see your portfolio through extreme turbulence and protect your family wealth.