In volatile times, it’s how you bounce back that matters
The United States has faced many turbulent times throughout its history—from the Civil War to the Great Depression, to Pearl Harbor, to the terrorist attacks of 9/11. 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 being a nation 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 about U.S. economic history. That spirit breeds an ingrained sense of optimism and an ability to overcome, he says. “America is a very resilient country.”
At a time of economic and political uncertainty, rapidly escalating technology and dire warnings on everything from terrorism to climate change dominating the news, resilience is more important than ever. Psychologists are studying resilience as a trait, MBA dissertations are written about how corporations can stay resilient, and cities around the country are appointing chief resilience officers to help overcome their many challenges.
Personal Resilience
Finding ways to bounce back from adversity is just as important for individuals as for cities and countries. The good news? Research shows humans are hardwired psychologically to meet and overcome financial or career setbacks, or even a serious disease or physical disability. As 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 some 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 challenging economic conditions and still 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 need in case such a situation arises, and advise you on creating an emergency fund that could help you avoid having to take on debt while you get back on your feet. 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, while positive, remains sluggish at around 2%. The European Union’s deep economic uncertainties intensified with the United Kingdom’s vote in 2016 to leave the union, and China, for years the world’s leading growth engine, has slowed. “There’s a lot of opportunity for volatility, and we don’t envision growth picking up dramatically,” says McKnight. “We think total portfolio returns are going to be lower for longer.”
Focus on goals.
That dose of reality only underscores the importance of focusing more on your personal goals than on temporary market ups and downs. “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 and abroad (see “Upside-Down Lending,” page 3). And while China and other countries have struggled recently, emerging markets may offer long-term growth potential, McKnight says.
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 a Regions Wealth Assessment®, which can help clarify your current financial status and what level of risk you can tolerate in order to maintain and enhance your lifestyle. Linardos recommends periodic conversations with your Wealth Advisor to discuss market conditions, and meeting annually to review your portfolio and talk about any changes in your life that may affect your long-range 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.”
