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Sam Boyd: How The Ultra-Wealthy Are Preparing Their Portfolios For A Recession Thumbnail

Sam Boyd: How The Ultra-Wealthy Are Preparing Their Portfolios For A Recession

This article originally appeared in Business Insider and contains a quotation from Capital Asset Management Group Senior Vice President Sam Boyd, CFP. To read the article in its original format, please click here

By Taylor Nicole Rogers

A recession may be imminent, and the ultra-wealthy are taking notice.

Many are rearranging their portfolios in an effort to protect their fortunes, a group of certified financial planners told Business Insider.

Their strategies vary from person to person based on their risk tolerance, Ashley Folkes, a certified financial planner and senior vice president of Moors & Cabot, an Arizona wealth-management firm, told Business Insider.

Folkes said that "over the years working with high-net-worth clients," he had seen "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."

Older ultra-wealthy Americans are the most anxious to modify their portfolios in anticipation of a market correction, Ben Smith, a certified financial planner with Cove Planning in Wisconsin, told Business Insider.

"We have explored moving into high-quality fixed income and even alternatives in order to provide ballast in a volatile equity market," Smith said.

Here are five things the ultra-wealthy are doing to prepare for a recession, according to their financial planners.

1. Wealthy investors are ditching bonds

Short-term bonds have offered investors higher returns than their long-term counterparts since the yield curve inverted in August, Business Insider previously reported.

But an inverted bond yield curve isn't just an important indicator of a shrinking economy, according to Steven Kaye, a certified financial planner and the CEO of AEPG Wealth Strategies in Warren, New Jersey.

2. Instead, they're stockpiling cash to maintain their liquidity

Moving one's fortune to cash is a popular way to ensure it outlasts a recession, according to Samuel Boyd, a certified financial planner and the senior vice president of Capital Asset Management Group in Washington, DC.

"The key to surviving, and thriving, in any recession is access to liquidity," Boyd said. "As the old saying goes, 'cash is king,' and it can mitigate portfolio risk as well provide a fulcrum to capture opportunities when the world is on sale."

The billionaire hedge-fund manager Sam Zell of Equity Group Investments is also shifting the assets under his management into cash, he told CNBC earlier this month.

"We certainly never had a cash position like we have now," Zell said. "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."

"Bonds offer little value currently, except for portfolio ballast," Kaye told Business Insider.

Reducing clients' exposure to bonds also reduces their exposure to fluctuations in interest rates and the overall market, Kaye said — two things that would be abundant in a recession.

3. The 1% are embracing ETFs to shield their wealth from unnecessary risk

For high-net-worth people, exchange-traded funds provide a lower-risk way to stay in the market amid increased volatility among equities.

"If you want to stay invested in equities until there is a stronger feel for a recession, then you could shift to index ETFs, to index low volatility ETFs," Folkes told Business Insider.

Folkes also recommended that those looking to mitigate their risk invest in dividend-paying stocks with long histories.

"Shift more to high-quality dividend-paying companies that have shown historically they can handle prolonged periods of weakness in the market by having low debt and solid balance sheets," Folkes said.

4. They are paying down any debts

Even high-net-worth people who haven't reallocated their portfolios in anticipation of a market correction are looking to refinance and pay off their debts while interest rates remain relatively low, Jared Friedman, a certified financial planner with Redwood Planning in New Jersey, told Business Insider.

"Clients are asking about it and discussing it more but have not made any allocation changes at this time," Friedman said. "We are trying to proactively pay down any extra debt and save more money."

5. The best thing the ultra-wealthy can do is stop trying to game the market

Ultimately, though, the best thing nervous high-net-worth investors can do for their portfolios may be nothing at all, Smith told Business Insider.

"I have received a few questions from these clients about their current allocation and how different market scenarios will impact potential returns," Smith said. "I reiterate that their risk tolerance, asset allocation, and ultimately their portfolio mix reflects a potential recession in the markets, and the most important thing they can do in order to maximize the probability of reaching long-term goals is to stick with their plan and don't give in to emotions."


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