Date: April 24, 2023

Recession Preparation for High-Net-Worth Individuals

The world’s economies, like our own, are never static. They’re always in motion, like tides in the various oceans. This is why, although storms such as inflation and stock market instability aren’t frequent, they’re not unheard of, either. Generally speaking, they blow in, and then, eventually, they depart.

Historically, severe storms like recessions have been much rarer, but unfortunately, they can also last even longer. That is why it is crucial to keep your portfolio prepared for possible economic downturns today: A prolonged recession in 2023 or 2024 could have a significant economic impact, even on the high-net-worth retirement you plan, unless we focus on fortifying your savings and assets.

This article is a discussion of these topics:

  • Review & update your retirement projections
  • Maintain a long-term perspective on your goals
  • Make sure your portfolio’s balanced & diversified
  • Minimize tax liability to maximize your legacy

1. Review & Update Your Retirement Projections

Think of managing your wealth like driving a car—and your retirement projections as your windshield. In today’s economy, it’s dangerous to ignore the road ahead for long. Even a high-net-worth individual should review and proactively update your plan as necessary to avoid letting your future golden-years income be diminished. 

So, start by making sure that you have a clear understanding of the financial goals, lifestyle, and expenses you’re likely to have after leaving the workforce. We can better plan to meet these needs, compensating for inflation and other factors, once you have a current understanding of them to work from. 

Next, consider reviewing your investment portfolio, savings plan, and overall retirement strategy. Revisit your current asset allocation and investment strategy, as well, in case changes are necessary to mitigate today’s risks and better secure your retirement. Each of these elements is essential to developing a reliably current picture of your financial well-being. 

2. Maintain a Long-Term Perspective on Your Goals

I understand: It’s human nature when news reports spur some investors to assume the worst and wonder if you should. However, the vast majority of the time, this eventually proves to be a mistake. Stampeding cattle are typically only as intelligent as the herd’s dullest member. 

Similarly, following the human variety can lead you off a monetary cliff with no warning. For example, one of the most common mistakes investors make during a recession is panic-selling their assets. This may seem like a good way to avoid losses, but it’s much wiser to keep your long-term goals in mind. Panic selling can lead to significant losses and profound regret over the long haul.

It’s often difficult to recover from these losses, as well. Imagine that peanut-butter-related supply chain issues cause your shares in a snack manufacturer to decline somewhat: If everyone else is dumping their stock, you could follow along, but what if that panic is the end of the decline? What if those shares  start to gain again later this year as the company’s prospects improve?

If, by mid-summer, the peanut butter supply lines are running smoothly again, the snack maker’s stock might have recouped its losses by the last quarter of the year. Those assets might even be making gains ahead of where they were, to begin with, early in 2024.

At that point, you can’t buy back in without lost opportunity cost. Conversely, if you’ve played the long game, talking with your financial advisor (verifying that it’s only a temporary supply issue weighing them down) and holding onto your shares, you can grin: While the panic sellers kick themselves, you can watch your shares’ value climb.

So, as a rule of thumb, focus on your long-term financial goals and hone your strategy to keep aligned with those investment objectives. Let the herd run shouting in circles if they must. Review your investment portfolio and make changes, if necessary, to ensure that it’s balanced and diversified. 

3. Make Sure Your Portfolio’s Balanced & Diversified

Even when there’s no talk of a coming recession, this step is a no-brainer. Maintaining a well-diversified portfolio can help minimize risks and maximize returns, regardless of the economic weather. However, it can’t be done as effectively once the storm is on top of us. We have to prepare it for withstanding economic downturns as far ahead of the need as possible. 

A well-diversified portfolio includes a mix of different types of investments, such as stocks, bonds, commodities, mutual funds, and ETFs. The idea behind this approach is to spread your money across very different types of investments. This, in turn, reduces the risk of losing all your money if any one single investment performs poorly.

If your portfolio is balanced, on the other hand, it is also structured to meet your specific investment goals and risk tolerance. For example, if you’re close to retirement, you might want to have more income in your portfolio than growth to reduce the risk of losing money in a market downturn.

A balanced and diversified portfolio can also help you take advantage of unique opportunities that arise during a recession. You might, for instance, be able to buy discounted stocks or invest in normally-expensive real estate while their prices are low. 

4. Minimize Tax Liability To Maximize Your Legacy

minimize tax liabilityBelieve it or not, it’s possible to potentially grow your nest egg, even during a recession—largely by strategizing how you pay your taxes. For instance, we can leverage tax-advantaged accounts, gifting of specific assets, and, if you’re inclined, donating to charity. You might opt to invest in tax-efficient funds and plan ahead for your future estate taxes, as well. 

Taking advantage of these credit and deduction-generating opportunities can reduce the overall amount of money that you owe the IRS. It takes time, meaning that your best results are only obtainable over years or even decades, but it can free up more funds to invest in your future. 

Whether your goal is to grow your wealth, leave a larger inheritance, or further support a cause you care about, minimizing your tax liability may help your financial legacy outlast market downturns. You can still retire with confidence in Woodbridge or Connecticut or anywhere of your choosing if you plan to.

I say this as an Accredited Investment Fiduciary® (AIF®) to high-net-worth individuals and families. To learn more about fortifying your savings and assets against the recession, contact us or schedule a free consultation. 


Not Sure How to Prepare for Retirement in the Hartford Area? We’ve Written a Guide to Help.


Paul Schatz, President, Heritage Capital