How to Prepare for Uncertainty in 2022?

In today’s volatile, dynamic world, families are experiencing significant financial challenges. As we look ahead to 2022,  we need to take steps today to prepare for economic uncertainty and volatility. Here are strategies families can implement to prepare for the coming year today. 

Build a balanced and diversified investment portfolio

The financial markets have always tested investors. Managing risk, returns, and liquidity during volatile times, from the oil crisis in the 1970s to the pandemic of today, requires an investment portfolio that plans for the unexpected. While the past can help us prepare, we also need to consider new approaches to investing in this volatile world.

Review resources and the structure of your investments – examine the roles of your advisors, and their investment committee to understand how investment decisions are made. Balance a nimble investment approach with having appropriate risk controls.

Rebalance with discipline – families should look at their investment statements to guide long-term asset allocation and rebalancing. During times of volatility, assets can quickly become out of your risk tolerance.

Look toward market opportunities – Build flexibility into your investment portfolio with opportunity allocations, allowing you to move quickly with changing conditions.

Evaluate active management approaches versus alternative or factor-based investments, knowing that suitability is dependent on your personal needs.

Consider outsourced investment mandates to manage volatility – many investors are opting for outsourced investment managers and professional family offices who are creative and put your interests as their priority. 

Disruption brings new opportunities – even before the pandemic, assets managed in alternatives were increasing. In 2019, worldwide alternative assets reached almost $30 trillion – a 4.7% year-over-year jump. As professionals grapple with the difficulty of managing investments in volatile markets, they are seeing more opportunities to partner with outsourced alternative experts.

Removing complicated strategies to reduce liability risk – simple is sometimes the best policy. If you do not understand what you are investing in, do not invest. 

Expose yourself moderately to intellectual property and innovation and add them to your portfolio:  

Intellectual property and innovation serve as an effective hedge against volatile economic conditions. Whether organizations are looking to conserve cash by leveraging the sale or licensing of IP or protecting their balance sheets, intellectual property plays a role. Innovation during this time can also lead to companies changing paths or increasing their pace and investment in innovation.

Alternative assets have historically performed very well in volatile economies. In fact, when economies become distressed, the property has always retained and in fact, increased in value during that time.” 

Investing in equities (from the presentation by RBC) 

Since the economy is realistically in the slowdown/late-cycle stage, families should focus on equities that are: well-priced, large-cap, low-debt, and currently profitable. Their share prices should feature low volatility with a broadly upward trend. Given the high degree of market uncertainty, families should prioritize: 

1. Agility (tight monitoring of major trend changes and making more frequent portfolio adjustments). 
2. Tight risk management (small positions sizes, tight limits on losses, active profit-taking). 
3. Long-term focus on high-quality dependable growth (balanced growth) and dependable dividends (balanced income). 
4. Broadly balanced approach. 
5. Avoiding sectors under pressure; focus on Defensive Domestic Dividend payers. 
6. Long-term focus and patience. Avoid distraction by rapid rotation of trading narratives.
7. Focus on actual and current data (rather than on pundit guesstimates of the future).