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3 Wealth Management Strategies To Help You Through Economic Fluctuations

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The economy does not stay still for a long time and fluctuations are part of a normal cycle. There are periods of expansion and contraction as well as peaks and troughs which are driven by several factors such as the gross domestic product, consumer spending, interest rates, and employment levels.

Your personal finances, regardless of size, will be affected whenever something happens to the economy. That is why, when contractions and troughs happen, it is easy to fall into a cycle of panic which can lead to you making the wrong decisions for your finances. 

But you have to remember that every economy will go through these cycles, even in countries that are known to be financially strong. It is inevitable, and there are many who have survived these periods of contraction in previous years. These people have managed to wait for the succeeding expansion and peak, with some emerging in an even better financial standing compared to before.

What sets these people apart from others is the way they manage their wealth. If this is not your forte, and you do not have the confidence to do it yourself, your best option is to look for a financial advisor who can guide you along the way. In the meantime, here are 3 wealth management strategies that you can work on in order to help you survive an economic fluctuation:

1. Think Long Term

When you start planning for your finances, you always have to think long term. Dealing with your finances based on just your daily needs will lead to financial and emotional distress, which makes you vulnerable to these market fluctuations. You will also end up helpless and possibly financially unstable when faced with major life transitions like a job loss or retirement.

According to Samuel J. Dixon Oxford Advisory Group, “with people living longer on average, a future retiree must start retirement with a larger nest egg than most people did in previous generations.” This means that you need to plan early so you can accumulate the wealth that you need to support yourself comfortably after you retire. 

A long-term financial strategy refers to a written, well thought-out plan of what you want to do or have in the future, and what steps you need to take in order to achieve these goals. With bigger goals and timelines in mind, you will be able to make sound financial decisions in times of crises.  A long-term strategy will also give you the security and confidence to face financial stressors because you will see these as transient and temporary. 

2. Diversify And Balance Your Portfolio

In the US, the annual inflation rate reached a 40-year high last March, the gross domestic product declined by 1.4% in the first quarter of 2022, and now almost 80% of small business owners have become wary of a recession in the coming months. With all these indicators happening almost at the same time, a knee-jerk reaction would probably be to stay conservative in your financial decisions.

While this is not entirely wrong, doing so may lead you to missing out on several opportunities that could have significantly increased your wealth either at this time or right after the economy starts to recover. Instead of staying at the sidelines and waiting for a positive economic indicator before making a move, it is better to diversify and find a good balance between risk and investment for your portfolio.

If you are into stock trading, get a good mix of growth and value stocks. Consider allocating some of your finances for bonds as well. It is also advisable to minimize your international exposure and stick to domestic stocks since it is difficult to predict the action of central banks in other countries, which will have a big impact on their own stock market.

3. Keep An Emergency Fund

When the inflation rate is high, your money decreases in value very quickly. It then becomes discouraging to keep cash reserves with you, and you may feel an urge to just invest everything that you have. 

However, this is not a good idea because there are no exact timelines to an economic cycle, thus you cannot be sure when you can reap the fruits of your investments. If the period of contraction lasts longer than you expected, you will be placed in a difficult position with a high probability of being forced to make financial decisions that result in big losses. 

That is why it is important to always retain enough cash with you that can tide you over in case of a financial emergency. The exact amount depends on your lifestyle and usual spending. On the average, it is recommended to retain funds that are equal to 6 months of your usual expenses plus a small buffer to provide for inflation and unscheduled purchases.