5 things the ultra-rich are doing to prepare for a possible recession

A recession may be imminent and the ultra-rich are becoming aware of it.REUTERS / Brendan McDermid

• Some economic indicators warn that a recession could be imminent.
• Although many financial planners advise not to change your portfolio in response to the market, some wealthy individuals transfer their bond assets in cash to reduce their risk.
• Business Insider met with five certified financial planners in the United States to find out how the ultra-rich were preparing for the possibility of a recession.
• Financial planners of the wealthy advise their clients to reduce their debt in anticipation of a market downturn.
• Visit the Business Insider home page for more stories.

A recession may be imminent and the ultra-rich are becoming aware of it.

Many of them are reorganizing their portfolios to protect their fortunes, said a group of certified financial planners at Business Insider. Their strategies vary from person to person based on their risk tolerance, Business Insider told a licensed financial planner and senior vice president of Arizona Moors & Cabot's wealth management company Ashley Folkes .

"Over the years, working with wealthy clients, he [has been] a tendency to protect and then increase their wealth, said Folkes. We discuss the undue risks you want and are ready to take to achieve your goals. Currently, I see investor conversations are turning into a slightly more defensive position. "

Read more: Billionaires tend to make riskier investment choices than millionaires, which partly explains why wealthy individuals have lost so much of their money in 2018

Ben Smith certified financial planners from Wisconsin-based Wisconsin-based Cove Planning told Business Insider that the richest and richest Americans wanted to change their portfolios in anticipation of a market correction.

"We considered moving to high-quality fixed income and even alternatives to provide ballast in an unstable stock market," said Smith.

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

1. Rich investors abandon bonds.

According to certified financial planner Steven Kaye, CEO of AEPG Wealth Strategies in Warren, New Jersey, a reverse bond yield curve is not just an important indicator of the contraction of the economy. Short-term bonds offer investors higher returns than their long-term counterparts since the first performance curve reversal on August 28, Business Insider reported.

"Bonds offer little value right now, with the exception of portfolio ballast," Kaye told Business Insider.

Reducing the exposure of customers to bonds also reduces their exposure to fluctuations in interest rates and the market as a whole, said Kaye, two things that would be plentiful during a recession.

Read more: The yield curve is reversed. This is what it means and what are the consequences for the economy.

2. Instead, they store money to maintain their liquidity.

According to his licensed financial planner, Samuel Boyd, who is also senior vice president of Capital Asset Management in Washington, transferring his fortune in cash is a common way to ensure that he will survive the recession longer.

"The key to surviving and thriving in any recession is access to liquidity," Boyd said. "As the old saying goes," money is king "and can mitigate the risks of the portfolio, it is also a point of support for seizing opportunities when the world is on sale."

Bill Zaire's hedge fund manager, Sam Zell, of Equity Group Investments, is also transferring assets under his management in cash, according to MarketWatch. We certainly never had cash like today, Zell said. We are very reluctant to this opportunity. We think that there will be significant opportunities, but what we do not see, is the urgency. "

3. The 1% adopt the ETFs to protect their assets against unnecessary risks.

For wealthy individuals, ETFs offer a less risky way to stay in the market despite the increased volatility of equities.

"If you want to continue investing in stocks until the recession is felt more and more, you can switch to ETFs, low volatility indices," Folkes told Business Insider.

Folkes also recommends high-net-worth individuals seeking to mitigate their risks to invest in long-standing dividend stocks.

"We are turning more to high-quality dividend paying companies, which have shown in the past that they can face long periods of market weakness thanks to low debt and strong balance sheets," he said. said Folkes.

4. They repay their debts.

Even wealthy individuals who have not reassigned their portfolios in anticipation of a market correction are looking to refinance themselves and pay off their debts while interest rates remain relatively low, explained to Business Insider Jared Friedman of Redwood Planning, a licensed financial planner in New Jersey.

"Customers are talking about it and discussing it more, but they have not made any allowance changes yet," Friedman said. "We are trying to proactively repay any additional debt and save more money."

5. The best thing the ultra-rich can do is stop playing at the market.

In the end, however, the best thing that wealthy and nervous investors can do for their portfolios may not be anything, Smith told Business Insider.

"These clients have asked me a few questions about their current distribution and the impact of different market scenarios on potential returns," Smith said. "I repeat that their risk tolerance, their asset allocation and, ultimately, their portfolio are a reflection of a potential market recession, and that the most important thing to do to maximize the likelihood To achieve the long-term goals is to stick to their goals, plan and not give in to emotions. "