Investing isn’t a walk in the park—even when the economy is firing on all cylinders.
During an economic downturn, many investors may become fearful and make unwise investment decisions, such as unloading shares for a loss because they think the price will keep plummeting.
As the economy continues to remain turbulent, it’s important to keep in mind that recessions are part of the normal economic cycle. Investors that withstood the massive downturns during the dot-com bubble and the 2007–08 financial crisis were ultimately rewarded for their resiliency.
Yet when the going gets tough, many people panic and sell. This is perfectly understandable; it’s human nature. That said, wise investors often do the opposite; they buy during panics when people are selling, knowing that with enough time, the markets will likely rebound.
Suffice it to say that making the right investment decisions during economic downturns is no easy feat. So, how do you make educated investing decisions during uncertain economic times? It starts with the understanding that you don’t have to manage your portfolio alone. By joining forces with a financial advisor, you can leverage their expertise and build a plan that helps you weather any economic storm.
How a Financial Advisor Can Help with Investment Portfolio Management
Since you’re reading this article, chances are you’re interested in securing your financial future and are curious about what you can do to make that happen. You likely have questions about your financial situation, and might not be sure that you can answer them well enough on your own.
This is where a financial advisor can make all the difference. It might be your first time managing an investment portfolio and building wealth, but experienced financial advisors can use their expertise to help you make investment decisions.
If you’re looking for an advisor, EP Wealth Advisors can help. Take our free assessment to determine if hiring a financial advisor would suit your needs.
Questions to Ask a Financial Advisor During Economic Downturn
While the right financial advisor can help you build a portfolio, the wrong advisor can wreak havoc on your long-term financial plans. In other words, you can’t just decide to enlist the services of any financial advisor and expect great results.
As you begin searching for an advisor, do your due diligence and ask these important questions to determine whether the candidate is the right one for you:
1. Are you a fiduciary?
You might think that all financial advisors would work in your best interest, but you would be wrong.
You first need to ask a prospective advisor whether they are a fiduciary. Simply put, a fiduciary is someone who is legally required to act in their clients’ best interests with every decision they make. A fiduciary must act in their clients’ best interests even in instances when it works against their own. At the same time, fiduciaries must disclose the fees they charge and their conflicts of interest.
2. What are your fees?
Some advisors, even some fiduciary advisors, earn commissions on the products they sell. Others are fee-only advisors, which implies that they do not earn any incentives by routing your investment dollars to specific exchange-traded funds (ETFs), mutual funds, or insurance policies.
As you begin searching for an advisor, it’s important to ask them whether they are fee-only advisors or if they earn commissions. The last thing you want is to work with an advisor who may not be giving you completely objective advice.
3. What is your plan for inflation?
In recent months, inflation has reached 40-year highs. By all accounts, it seems as though this inflationary period will persist for some time. As the Federal Reserve continues to raise interest rates to try to keep inflation in check, these moves have profoundly impacted the market.
It’s important to ask a potential advisor what their plan is to hedge inflationary risk. For example, some advisors might suggest routing money to banking stocks, which may be in a position to capitalize on rising rates. Other advisors might suggest putting money into energy companies or real estate investment trusts (REITs).
Ultimately, there’s no right or wrong answer here. You should poke around to see what a prospective advisor says on the issue.
4. How do you manage bear markets?
Bear markets are a different beast altogether, but wise financial advisors can still make the most out of them.
Again, there’s no right or wrong answer here. But the right financial advisor should be able to answer this question thoroughly.
Partner with EP Wealth During a Difficult Financial Situation
In an era of sustained inflation, supply chain challenges, and widespread labor shortages, it’s safe to say we’re in a difficult economic situation. While it might be a bit scary for you as an investor, it’s important to maintain your poise and understand that this too shall pass.
Historically, the market has gone up over time—even after profound economic downturns such as the Great Depression. While making smart investment decisions during a challenging economic climate is certainly complicated, it’s much easier to navigate these waters when you partner with a seasoned financial advisor.
If you’re worried about maintaining and building wealth during this difficult economy, contact a financial advisor today to see how you can build a plan that helps you accomplish your long-term financial goals.
DISCLOSURES
The information presented here is not intended to be regarded as a comprehensive list of considerations, including but not limited to, categories, services, or qualifications that a client or prospective client should consider when assessing or comparing Financial Advisors and/or Firms. As the author of this piece, EP Wealth Advisors, LLC (“EPWA”) has tailored the messaging of this article to align with the categories, services, qualifications, capabilities and services that it offers. EPWA makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. EPWA reserves the right to make changes to some or all of the information displayed here without notice.
The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. The referenced material identified herein is limited in nature and specific to what is offered by EPWA. There is no guarantee or warranty that the services offered by EPWA will satisfy your financial services requirements. Services offered by other advisors may be more suitable to your specific needs.
All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. The risk of loss can never be eliminated even if working with a professional.