Market Volatility: Navigating Uncertainty with a Strategic Approach

Market volatility can create uncertainty and anxiety. Understanding the factors
contributing to market volatility is crucial in developing effective strategies to protect investments and manage risk. While it is important to consider market fluctuations, working with an advisor can help manage risks and opportunities during these periods.

What is Market Volatility?

Market volatility refers to the extent and speed at which prices fluctuate within a defined period. When the stock market experiences daily rises and falls of 1% or more over an extended period, it is considered volatile. Several common factors contribute to market volatility, including slowing economic growth, rising inflation, geopolitical conflicts, and domestic policy changes. Recognizing these factors helps investors gain a better understanding of the market’s behavior and anticipate potential risks.

Presently, the public equity markets are exhibiting rich valuations compared to near-term earnings growth and macroeconomic growth. Concurrently, the Federal Reserve has been implementing measures to combat inflation, such as raising interest rates and reducing the money supply. These actions have unintended consequences, and it is expected that further repercussions may arise over the next 6-12 months. Investors need to be aware of the market’s current state and its potential impact on their investments.

Managing Risk in a Volatile Market

Managing risk in a volatile market requires adopting key strategies and approaches. Don’t let short-term market changes affect long-term investments or make hasty decisions if you’re a long-term investor. Instead, focus on earning interest on cash holdings, currently averaging around 5%, without taking excessive capital risk. Maintaining a disciplined approach to risk management helps protect investments during periods of market turbulence.

To identify potential risks and vulnerabilities in an investment portfolio, it is essential to evaluate investments based on their consistency with the stated goals. By aligning investments with the pathway to achieving these goals, investors can ensure that their portfolios remain on track. Regular monitoring and review of the portfolio’s performance help identify any deviations or potential risks that may require adjustments.

Utilizing Diversification and Asset Allocation

Diversification and asset allocation are powerful tools for mitigating risk in volatile markets. By creating
financial plans and retirement projections, financial advisors can construct client portfolios that focus on their specific goals. This goal-centric approach enables the preservation of portfolios through market cycles, even during challenging periods.

Balancing asset classes and diversifying investments involves investing in high-quality companies that generate significant dividend income and consistent capital appreciation. Additionally, blending portfolios with municipal and taxable bonds, depending on individual circumstances, can further enhance diversification and risk mitigation.

Opportunities in Volatile Markets

While volatile markets pose challenges, they also present potential opportunities for investors. By actively managing core investment segments, portfolio managers can capitalize on underpriced assets and identify overpriced ones. The aggregation of specialty asset segments into one collective portfolio allows for a comprehensive and strategic approach to navigate volatile markets. It is essential to stay vigilant and seize opportunities that align with long-term investment objectives.

Tailor Investment Plans for Short-term and Long-term Objectives

Creating investment strategies that consider both short-term cash-flow needs and long-term goals is crucial. Clients often require immediate liquidity while also aiming to ensure that their portfolios outlive them and provide for future generations. By developing tailored investment plans that account for these different objectives, investors can strike a balance between meeting immediate needs and achieving long-term financial security.

Active versus Passive Management

During volatile markets, active management becomes particularly important to remain opportunistic. Active management enables portfolio managers to assess underpriced and overpriced assets in real-time, adjusting investment strategies accordingly. Passive management is good in stable markets, but adapting to changing conditions is important during volatile times.

Should strategies be adjusted based on Market Conditions?

Investment strategies should be adjusted based on evolving intermediate and long-term market conditions. Regular research and analysis from a fresh perspective enable investors to stay ahead of market developments and make informed decisions. By monitoring market trends and reassessing investment strategies, when necessary, investors can align their portfolios with the changing market landscape.

Keep Emotions in Check

Periods of market volatility can evoke strong emotional reactions. At BHPW, behavioral finance is a core part of how we collaborate with our clients to manage their emotions and expectations. Clients typically feel most comfortable when their portfolios exhibit low volatility while delivering consistent income and growth. By adopting a “hitting singles and doubles non-stop” approach, which focuses on steady progress and incremental gains, you can help to mitigate emotional distress and promote a long-term investment mindset.

Market volatility can be challenging, but with a strategic approach, investors can protect their portfolios and seize opportunities. BHPW is here to give you guidance to navigate these complexities. Reach out to find out how we can help.

Beverly Hills Private Wealth, LLC is a registered investment adviser. This is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Beverly Hills Private Wealth, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Beverly Hills Private Wealth, LLC unless a client service agreement is in place.

SECURE 2.0: Enhancing Flexibility in 529 Plans

529 plans have long been recognized as a reliable means of saving for higher education expenses. However, recent developments have expanded their horizons to extend beyond their original purpose. From alternative beneficiaries and diverse educational expenses to innovative investment options, 529 plans offer versatile possibilities.

With the passing of the SECURE 2.0 legislation, starting in 2024 beneficiaries of 529 accounts will have the option to rollover a maximum of $35,000 over their lifetime to their Roth IRA, if they meet additional criteria.

Key Considerations for 529 Plan Rollovers:

Minimum 15-year duration. The 529 plan must have been open for at least 15 years to be eligible for rollovers.
Beneficiary ownership. The owner of the Roth IRA must also be the beneficiary of the 529 plan.
Income requirement. The rollover is contingent upon the Roth IRA owner having income equal to or exceeding the rollover amount.
Exclusion of recent contributions. Contributions made within the past five years, including associated earnings, are ineligible for tax-free transfers.
Roth IRA contribution limits. Rollovers from a 529 plan to a Roth IRA count against the annual contribution caps of the Roth IRA.

If the Roth IRA Rollover is not an option, a 529 plan can still offer several interesting options and benefits. Here are some possibilities to consider:

Change Beneficiary. If the original beneficiary of the 529 plan decides not to pursue higher education or doesn’t require the funds, you can change the beneficiary to another qualified family member. This flexibility allows you to support another loved one’s educational pursuits.
Future Educational Expenses. Even if the original beneficiary has completed their education, the funds in a 529 plan can be saved for future educational expenses. This includes graduate school, vocational training, or professional development courses. The tax-advantaged growth of the funds can continue until they are needed.
Lifetime learning credits. The funds in a 529 plan can be used to cover eligible expenses for lifetime learning credits. These credits can be claimed on your tax return to offset the costs of continuing education for yourself or your qualified dependents.
Transfer to another state’s plan. In some cases, you may find that another state’s 529 plan offers more attractive investment options or lower fees. You can explore the possibility of transferring your 529 plan funds to another state’s plan, taking advantage of potential benefits and optimizing your savings.
Keep for future generations. If you have young children or anticipate having children in the future, you can keep the 529 plan intact and allow the funds to grow over time. This ensures that you have a dedicated education fund available when the next generation is ready to pursue higher education.
Estate planning. A 529 plan can be incorporated into your estate planning strategy. You can establish a trust to ensure that the funds are utilized for educational purposes in the future. Contributions to a 529 plan can be considered completed gifts for estate tax purposes. By transferring assets into a 529 plan, you may potentially reduce the size of your taxable estate.

Remember to review the specific rules and regulations governing your 529 plan and consult with a financial advisor, tax professional, or estate planning attorney to explore the best options for your specific circumstances. Beverly Hills Private Wealth can provide comprehensive advice tailored to your financial goals and help you make the most of your 529 plan funds. Contact BHPW to learn how we can help you.

Beverly Hills Private Wealth, LLC is a registered investment adviser. This is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Beverly Hills Private Wealth, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Beverly Hills Private Wealth, LLC unless a client service agreement is in place.

Sudden Wealth: Managing Windfall Gains

Receiving a sudden influx of wealth can be a dream come true for many people. Whether it’s a legal settlement, execution of stock options, selling your business or receiving an inheritance, sudden wealth can transform your life overnight. However, newly amassed wealth also comes with significant challenges and risks. Without proper planning and guidance, sudden wealth can be lost as quickly as gained.

Take a pause and assess.

Before making any decisions, take some time to reflect on your newfound wealth and what it means for your life goals and financial future. It’s easy to get caught up in the excitement and spend impulsively, but taking a moment to pause and consider your options can help you make better decisions in the long run.

Seek professional advice.

Consider working with a financial advisor who can help you make informed decisions and develop a long-term financial plan. A sudden influx of wealth can be overwhelming, and it can be challenging to make rational decisions amid such a significant change. A financial advisor provides objective advice to help you make educated decisions about your money.

You will benefit greatly from objective advice that only serves your best interests. Work with a financial advisor to begin the process.

Create a budget and stick to it.

Develop a budget that reflects your new income level and prioritize saving for the future. Resist the urge to spend all your newfound wealth at once. Instead, create a sustainable budget that allows you to maintain your standard of living while also saving for the future.

Diversify your investments.

Avoid putting all your wealth into one investment or asset class. Instead, consider diversifying your investments to manage risk. A “slow-and-steady” approach to stocks and investments is a smart strategy. Diversifying your wealth can help protect you from market volatility and reduce your overall risk.

Avoid overspending and lifestyle inflation.

Be wary of making large, spontaneous purchases that can quickly deplete your newfound wealth. Large amounts of money should be treated as a business. Just because you have more money doesn’t mean you need to spend it all.

Be Generous – But Be Smart.

Family and friends can often be the biggest threat to your sudden wealth. New friends and

Friends – old and new- can be a detriment to new wealth
estranged family members may resurface in your life for the wrong reasons, expecting a share of your newfound wealth. Athletes and lottery winners experience this frequently. It’s quite common for advisors of athletes to put the athlete on a salary and advise them to direct requests for money to the advisor. This creates some distance between you and the family member or friend – and your wealth. You may also find yourself exposed to frivolous lawsuits and threats. The safety of your person and your family, as well as your wealth, will become very important.

Shift your thinking from “sufficiency” to “stewardship” regarding your assets.

Manage Expectations of Charitable Giving

Developing a comprehensive financial and life plan that includes charitable giving and gifting is essential when managing sudden wealth. Be clear on the amount of income you would like, but also the type of life you want and the charities you hope to impact. Depending on the amount of wealth, you move from “sufficiency thinking” to “stewardship of the assets.” Once you identify your goals around each area, it becomes much easier to associate dollars needed to fund those goals.

Working with an advisor can also help educate you about exactly what you can – and can’t – expect to accomplish with your newfound wealth. Recipients of sudden wealth may not be aware of tax-smart charitable giving strategies that may help them in the future.

Educate yourself.

Take the time to educate yourself about financial concepts and investing strategies. This will help you make informed decisions and avoid costly mistakes. Don’t be afraid to ask your financial advisor or other advisors questions as they walk you through their financial advice and plan.

Surround yourself with a support team.

It’s important to have a strong support network of people who have your best interests at heart. Surround yourself with friends and family members who will support and encourage you. Seek out mentors and advisors who can provide guidance and expertise.

Sudden wealth can be a life-changing experience, but it also comes with its own unique challenges and risks. By taking a thoughtful and deliberate approach, working with professional advisors, and staying focused on your goals and values, you can make the most of your newfound wealth and create a legacy for yourself and those you care about. BHPW is here to give you guidance to navigate these complexities. Reach out to find out how we can help.