Weekly Spotlight: Wealth planning for a recession

Economists are divided on how and when the UK will recover from the shock of the Covid-19 pandemic. But whether the recovery is V shaped, W shaped, K shaped, or some other letter that is not even suggested yet, we all need to shape our wealth plans to withstand it.

Figures out last week confirmed that UK GDP (gross domestic product) had slumped 2.6 per cent month-on-month to November1, pushing the UK’s economic recovery further back after a second lockdown and a combination of tiers.

Despite the speed of the vaccination programme, it is clear there will be bumpy months ahead. A good wealth plan is one that is designed to withstand these bumps and still deliver on your goals. Here are some tips to ensure your financial plan is in good shape.

1. Focus on your goals

Having clearly defined goals will help you to plan what to do with your wealth, regardless of what the economy does.

A good wealth plan will include your goals for retirement, any plans for leaving a legacy as well as an estimate of how much you will be able to afford to save and invest at different times in your life.

Over the long term, your ability to stick to a plan like this - while re-evaluating it regularly - will help you to make the progress you need, regardless of how investments perform as a whole.

A financial adviser will be able to help you to work out how realistic your plan is and use modelling technology and funds matched to your risk profile to keep you on track. A good financial plan should include several scenarios, based on different rates of return impacting your assets.

It is a plan that should be reassessed regularly, to see whether retirement plans or pension contributions need to be readjusted to account for the trajectory.

2. Block out external noise

The news is bleak, but that doesn’t necessarily translate into your financial position.

As we’ve seen in 2020, the stock market does not always mirror the behaviour of the economy. After an initial shock, markets bounced back fast, and even though a ‘double dip’ recession looks likely in the UK, that doesn’t mean that investments will fall in the short term.

If you are managing your own investments, it is easy to get caught up in short-term noise, buying and selling at the wrong times based on sentiment. Keeping your eyes on your long-term plan and relying on expert wealth managers to ensure you keep to it is particularly important in turbulent times.

3. Keep diverse

In economically tough times, it is crucial to ensure that your portfolio of investments is not concentrated in any one area. This is because different assets perform well at different stages in the economic cycle.

Your investment portfolio might be a mix of equities, government and corporate bonds and other types of asset. This mix should also change over time, depending on your financial plan and when you think you might need to liquidate these assets or use them to produce an income.

A diverse portfolio is less likely to be rocked by external circumstances, and having a mix of different assets means you are less likely to have to sell something at the wrong time in the economic cycle out of necessity.

4. Protect where possible

A good financial plan protects against eventualities that can blow you off course, and in uncertain economic times that’s particularly important. That means considering your insurance needs, which may include insuring against critical illness or buying life cover to ensure your family could pay the bills if you passed away.

Coronavirus has meant that it is very difficult to get unemployment cover at present, but this is something that may change in the coming months. Your protection needs should be regularly reviewed, particularly if family circumstances change.

Our financial advisers can assist you with all of the above aspects of financial planning and work with you to create a plan that minimises any negative effects of a recession on your wealth.

 


 

1. https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/november2020