The Power of Resilience: Managing Finances During Times of Uncertainty
In volatile times, it’s not only how you bounce back that matters, but also how you prepare yourself and your finances.
The United States has faced many turbulent times throughout its history — from the Civil War to the Great Depression, from the terrorist attacks of 9/11 to today’s COVID-19 health crisis. Yet Americans have never been defined by their difficulties as much as by their extraordinary capacity to bounce back.
That’s due in no small part to the fact that our nation was founded by idealistic, hopeful immigrants, says noted historian and author John Steele Gordon. “If Americans are famous for their ‘get up and go,’ it’s because we have ancestors who got up and came here,” says Gordon, author of “An Empire of Wealth”, a book on the United States’ economic history. That spirit breeds an ingrained sense of optimism and an ability to overcome, Gordon says. “America is a very resilient country.”
At a time of economic uncertainty for the entire world, resilience is more important than ever. Here, we outline how personal and financial resilience can be incorporated into your financial strategy during these volatile times.
Personal Resilience
Finding ways to bounce back from adversity is just as important for individuals as it is for cities and countries. The good news? Research shows humans are hardwired psychologically to meet and overcome financial setbacks, career setbacks, or even a serious disease or physical disability.
As a co-author of the book “Supersurvivors: The Surprising Link Between Suffering and Success,” Santa Clara University psychologist David Feldman studied individuals who endured cancer, blindness and other devastating blows and went on to achieve greatness in fields ranging from music to mountain climbing.
While it’s important not to minimize the real suffering that trauma can bring, Feldman says the majority of people who experience adversity — up to 80%, according to some research — not only recover but report that their lives ultimately change for the better in a large or small way. “As a species, we seem able to face some of the worst things imaginable and find a way to not only bounce back but bounce forward,” Feldman says.
But that optimism, he adds, must be combined with a clear-eyed view of reality — a willingness to assess one’s circumstances objectively and then figure out how to move forward.
Financial Resilience
That same approach applies to developing a financial strategy resilient enough to carry you through uncertain economic conditions and help you to meet your long-term goals, says Alan McKnight, Chief Investment Officer for Regions Asset Management in Birmingham, Alabama. Regardless of the obstacles, “we all have goals,” McKnight says. “The question is, how do you accomplish them?”
While there may be no way to predict a job loss, business reversal, or other setback, your Wealth Advisor can help you structure your financial portfolio to give you the liquidity you may need while advising you on how to create an emergency fund that could help you avoid having to take on debt. The amount you should save will depend on your individual situation and needs. That’s something you can discuss with your Wealth Advisor, and estimate using the emergency fund calculator at regions.com.
Financial resilience also means recognizing that we live in a challenging economic climate — and preparing your investment portfolio accordingly, McKnight says.
U.S. GDP growth hovered at around 2 percent prior to the COVID-19 outbreak. The response to COVID-19 will have a negative impact on the economy. But given the speed with which the disease spread, it’s not possible to predict how much or for how long the economy will feel the aftereffects.
Focus on goals.
“Setting objectives is the key to creating a portfolio that’s resilient,” says George Linardos, Portfolio Management Area Manager for Regions Asset Management in Clearwater, Florida. Your Wealth Advisor can help you structure a portfolio that is more conservative for needs arising soon, such as sending a child to college in the next few years. Longer-term goals, such as saving for retirement two or three decades away, may enable you to take greater risks in search of growth. Since there’s time to recover, says McKnight, “you can live with a lot more volatility.”
Diversification matters.
When it comes to the assets you invest in, “Diversity and quality are the two cornerstones of a successful, resilient portfolio,” Linardos says. High-quality equities such as large U.S. companies with long histories of paying and raising dividends may add stability and income at a time of persistently low interest rates in the United States.
To add diversification and protection against volatility, Linardos says investors may want to consider “diversified strategies funds.” These funds offer investors an array of managed strategies not closely correlated to traditional stock and bond returns. The result could be a less volatile portfolio that may help investors stay the course during tough times.
Start with a conversation.
Ask your Wealth Advisor about wealth planning to help clarify your current financial status and what level of risk you can tolerate in order to maintain your lifestyle during these unprecedented times. Linardos recommends periodic conversations with your Wealth Advisor to discuss market conditions and annual meetings to review your portfolio and talk about any changes that may affect your long-term objectives.
Just as nations and people show their hardiness and resolve every day, your financial strategy can be built for resilience, Linardos says, “so you can ride out the stormiest of times.”
For guidance on building resilience into your portfolio, consider meeting with a Regions Wealth Advisor.
