5 things the ultra-wealthy are doing to prepare their portfolios for a possible recession, from ditching bonds to stockpiling cash

5 things the ultra-wealthy are doing to prepare their portfolios for a possible recession, from ditching bonds to stockpiling cash

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REUTERS/Brendan McDermid

A recession may be imminent, and the ultra-wealthy are taking notice.

  • Some economic indicators warn that a recession may be imminent.
  • Although many financial planners advise not altering your portfolio in reaction to the market, some high net worth individuals are shifting their fortunes from bonds and into cash to reduce their risk.
  • Business Insider spoke with five certified financial planners around the US to find out how the ultra-wealthy are preparing for the possibility of a recession.
  • Financial planners for the ultra-wealthy are advising their clients to reduce their debt in preparation for a market slowdown.
  • Visit Business Insider's homepage for more stories.

A recession may be imminent, and the ultra-wealthy are taking notice.

Many of them are rearranging their portfolios in an effort to protect their fortunes, a group of certified financial planners told Business Insider. Their strategies vary from person to person based on their risk tolerance, certified financial planner and senior vice president of Arizona wealth management firm Moors & Cabot Ashley Folkes told Business Insider.

"Over the years working with high net worth clients, there [has been] a tendency to protect, and then grow their wealth," Folkes said. "We discuss how much undue risk you are wanting and willing to take in order to satisfy your goals. Currently, I'm seeing the conversations with investors shifting to a slightly more defensive stance."

Read more: Billionaires tend to make riskier investment choices than millionaires, and it helps explain why ultra high net worth individuals lost so much of their money in 2018


Older ultra-wealthy Americans are the most anxious to modify their portfolios in anticipation of a market correction, certified financial planner Ben Smith of Wisconsin-based Cove Planning told Business Insider.

"We have explored moving into high quality fixed income and even alternatives in order to provide ballast in a volatile equity market," Smith said.

Here are five things the ultra-wealthy are doing to prepare for a recession, according to their financial planners.

1. Wealthy investors are ditching bonds.

An inverted bond yield curve isn't just an important indicator of a shrinking economy, according to certified financial planner Steven Kaye, CEO of AEPG Wealth Strategies in Warren, New Jersey. Short-term bonds have offered investors higher returns than their long term counterparts since the yield curve first inverted August 28, Business Insider previously reported.

"Bonds offer little value currently, except for portfolio ballast," Kaye told Business Insider.


Reducing clients' exposure to bonds also reduces their exposure to fluctuations in interest rates and the overall market, Kaye said, two things that would be abundant in recession.

Read more: The yield curve is inverted. Here's what that means, and what the implications are for the economy.

2. Instead, they're stockpiling cash to maintain their liquidity.

Moving one's fortune to cash is a popular way to ensure it outlasts a recession, according to certified financial planner Samuel Boyd, who also serves as the Senior Vice President of Capital Asset Management in Washington, D.C.

"The key to surviving, and thriving, in any recession is access to liquidity," Boyd said. "As the old saying goes, 'cash is king' and it can mitigate portfolio risk as well provide a fulcrum to capture opportunities when the world is on sale."

Billionaire hedge-fund manager Sam Zell of Equity Group Investments is also shifting the assets under his management into cash, according to MarketWatch. We certainly never had a cash position like we have now," Zell said. "I think we're very reticent about the opportunity. We think there's gonna be some significant opportunities, but what we don't see is the urgency."

3. The 1% are embracing ETFs to shield their wealth from unnecessary risk.

For high net worth individuals, ETFs provide a lower-risk way to stay in the market amid increased volatility among equities.


"If you want to stay invested in equities until there is a stronger feel for a recession, then you could shift to index ETF's, to index low volatility ETF's," Folkes told Business Insider.

Folkes also recommends the high net worth individuals looking to mitigate their risk invest in dividend-paying stocks with long histories.

"Shift more to high-quality dividend-paying companies that have shown historically they can handle prolonged periods of weakness in the market by having low debt and solid balance sheets," Folkes said.

4. They are paying down any debts.

Even high net worth individuals who haven't reallocated their portfolios in anticipation of a market correction are looking to refinance and pay off their debts while interest rates remain relatively low, New Jersey-based certified financial planner Jared Friedman of Redwood Planning told Business Insider.

"Clients are asking about it and discussing it more but have not made any allocation changes at this time," Friedman said. "We are trying to proactively pay down any extra debt and save more money."


5. The best thing the ultra-wealthy can do is stop trying to game the market.

Ultimately, though, the best thing nervous high net worth investors can do for their portfolios may be nothing at all, Smith told Business Insider.

"I have received a few questions from these clients about their current allocation and how different market scenarios will impact potential returns," Smith said. "I reiterate that their risk tolerance, asset allocation, and ultimately their portfolio mix, reflects a potential recession in the markets, and the most important thing they can do in order to maximize the probability of reaching long-term goals is to stick with their plan and don't give in to emotions."