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Investing in Volatile Markets: Insights for Financial Advisors Serving High-Net-Worth Clients

by Joshua D. Rogers

As the financial landscape evolves, one constant is stubbornly inescapable: market volatility. For financial advisors serving high-net-worth clients, navigating periods of uncertainty requires a strategic approach and an empathetic understanding of client needs. 

High-net-worth individuals (HNWIs) can be understandably alarmed by economic uncertainty as they typically have significant assets exposed to market fluctuations. With the right strategies, financial advisors can play a critical role in steadying both clients and their portfolios through turbulent times — minimizing risk while deepening client relationships.

At Arete Wealth, we pride ourselves in leading with intellect and integrity, delivering excellence in all market climates. And as a firm founded in 2008 at the height of the Great Recession, we’re experts at weathering market volatility and protecting client portfolios. With over 15 years of experience leading one of the nation’s top independent BD/RIAs, here are my top strategies for investing in volatile markets.

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Communication Is Key When Investing In Volatile Markets

One of the most crucial aspects of navigating market volatility is effective communication. High-net-worth clients value transparency, timely updates, and clear explanations of market events. Advisors should be proactive in setting realistic expectations with clients while providing reassurance as you discuss potential strategies.

During market downturns, clients’ emotions may mirror the turbulence of the economy, resulting in fear, anxiety, and a temptation to make rash decisions. The stock market has a historical track record of delivering returns in the long-run — a fact that has been reinforced time and time again, but one that’s easy to doubt in periods of volatility. The best advisors will lead with empathy, validating client concerns (which are natural) while stressing the strength of their well-diversified portfolios and emphasizing the importance of staying focused on long-term wealth goals. 

Minimize Risk Through Asset Allocation and Diversification

Asset allocation and diversification are fundamental principles in managing risk during volatile market conditions. Advisors should work closely with their clients to review and adjust portfolios based on risk tolerance, investment goals, and market outlook. Diversifying across asset classes, alternative investments, sectors, and geographic regions can help capture opportunities that will ultimately push client portfolios ahead. 

Here are some tactical steps you can take proactively:

  1. Risk Assessment and Profile Construction: Conduct a thorough risk assessment for each client to determine their risk tolerance level. This can be achieved through risk assessment questionnaires, frank discussions about past investment experiences, and developing a deep understanding of their financial goals. Then, as you construct a portfolio allocation that aligns with the client’s risk appetite, ensure a balance between growth-oriented and defensive assets.
  2. Diversification Across Asset Classes: Spreading investments across different asset classes, including bespoke alternative investments, is key to reducing portfolio risk. Arete Wealth is proud to have the industry’s largest and most bespoke platform of alternative investments, with over 50 alternative offerings and sponsors (and counting), providing HNWIs with safeguards during volatile markets.
  3. Strategic Weighting: Within each asset class, employ strategic weighting based on market conditions and outlook. For example, during periods of heightened volatility, consider allocating a larger portion of the portfolio to defensive assets like high-quality bonds or cash equivalents while maintaining exposure to growth assets for long-term wealth accumulation. 
  4. Geographical and Sector Diversification: By allocating investments across different geographic regions, you can mitigate country-specific risks. Similarly, diversifying within sectors will avoid overexposure to any particular industry or market segment.

Don’t Forget to Look for Opportunity in Market Volatility

While market volatility often brings uncertainty and challenges, it also presents unique opportunities for smart investors. Financial advisors can guide their HNW clients to leverage these opportunities to find bright spots in tough times and build the foundation for sizable long-term growth. 

Here are some key considerations and opportunities that shouldn’t be overlooked:

  • A Buy Low, Sell High Strategy. Market downturns can create attractive buying opportunities for quality assets at discounted prices. Warren Buffett demonstrated this exceptionally well during the 2008 financial crisis when he made substantial investments in Goldman Sachs and Bank of America, which were undervalued at the time. Encourage clients to adopt a disciplined approach where they strategically invest in fundamentally sound companies or assets that are trading below their intrinsic value during market dips.
  • Seize Rebalancing Opportunities. Market volatility often leads to deviations from target asset allocations. Use downturns to rebalance portfolios by trimming over-performing assets and reallocating funds to underperforming or undervalued assets to potentially capture gains as markets recover.
  • Explore Undervalued Sectors. Certain sectors or industries may experience greater declines than others. Explore opportunities in undervalued sectors that show resilience or have strong growth potential in the long run. Share sector-specific analyses with clients and consider thematic investing approaches that align with emerging trends.

By taking a proactive approach in identifying opportunities during market volatility and leveraging the above strategies, financial advisors will play a key role in maximizing returns for their HNW clients — not just when the markets recover, but also during downturns. 

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Investing in Volatile Markets: Maintaining a Focus on the Long Game

Market volatility is temporary. By prioritizing client well-being, making sound diversification decisions to mitigate risk, and acting on often overlooked opportunities, financial advisors can act as pillars of stability for their HNW clients. 

At Arete Wealth, we understand the unique challenges and opportunities faced by HNWIs in navigating market uncertainty. We equip our financial advisors with industry-leading tools and resources to enhance portfolio management and reporting. Additionally, our strategic industry partnerships grant access to a leading network of specialized legal and tax professionals that can prove to be invaluable collaborators during tough times.

To learn more about joining Arete, fill out an advisor interest form or contact us directly at [email protected].

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