The Importance of Financial Planning in Volatile Markets

Good financial market planning is imperative to support the growth of your wealth over the long-term. During periods of positive market returns, it may be more appealing to seek out growth opportunities, which may lead to discussion with a financial planner or investment adviser. It is, however, crucial to consider and review your financial plan, whether markets face tail or headwinds…

Here are 4 Key Reasons Why:

Volatile markets and difficult market conditions can be incredibly stressful for investors. Portfolio values can decline sharply, worrying even the most seasoned investors. With so much unpredictability and fears of larger downturns in the back of your mind, it’s easy to feel anxious about your financial situation. The perspective of impending doom with volatile market planning is usually worse than reality thanks to the constant flow of news, which can be unavoidable, especially for those working in financial services…

Having a clearly defined financial market plan in place can provide a sense of peace and stability during periods of turbulence. By thoughtfully considering your risk tolerance, time horizon, investment goals and objectives ahead of time, you develop a strategic blueprint to navigate any market environment. So, when volatility strikes, you can take comfort in knowing you have a guide for your long-term objectives.

As all investments carry risk, no financial plan can eliminate uncertainty completely. By creating a tailored plan specifically for your situation and having trust in the underlying logic, riding downturns is much less scary.

With markets becoming increasingly volatile in recent years, implementing financial planning is crucial for managing your finances effectively. It is important to review and consider relevant tax allowances around the end of the tax year to ensure that you are maximising tax efficiency. This can have a significant positive impact on long term wealth accumulation, irrespective of shorter-term market volatility.

As showcased in our full tax planning guide, one example of an effective tax planning strategy in volatile markets is to realise any capital losses to offset capital gains. Capital losses can be offset against capital gains to reduce your overall tax liability. These losses can also be carried forward to future tax years to offset future capital gains.

In the 2023–24 tax year, the capital gains allowance is £6,000; however, from April 6, 2024, the capital gains tax allowance is reducing to £3,000, which places more significance on optimising the use of more tax-efficient investments such as pensions, ISAs, Venture Capital Trusts (VCT), and Enterprise Investment Schemes (EIS).

Sitting down annually to review your investments and financial plan and deciding on appropriate actions to implement ahead of changes coming into effect, will put you in a much better position. Being proactive and planning ahead for volatile markets is essential, rather than waiting until the last minute when options may be far more limited. With some forward planning, even volatile markets can present tax planning opportunities rather than just challenges.

Protection Against Losses: Effective risk management strategies can limit potential investment losses. This is crucial in volatile markets, where the risk of financial loss is heightened. Effective risk management helps protect your savings and investments from significant losses, ensuring that your capital is preserved.

Improved Decision Making: Financial risk management provides tools and frameworks for better decision-making. By assessing potential risks and their impacts, individuals can make better decisions about investments and their finances. Volatile markets often lead to emotional decision-making, which can be very detrimental to personal finances. A sound financial market plan helps in making decisions based on logic and strategy rather than emotions like fear.

Income Stability: For individuals relying on income from their investments, managing financial risk is crucial to maintaining a stable income stream. Volatile markets can lead to an unpredictable and potentially reduced income stream.

Retirement Planning: Long-term goals like retirement planning are also significantly impacted by market volatility. Effective risk management involves appropriate asset allocation, meaning balancing your portfolio across various asset classes to spread and mitigate risk. This can help protect your retirement savings from market downturns and help you stay on track with your long-term goals.

Volatile markets can provide long-term investors with opportunities to buy quality assets at reduced prices. However, identifying legitimately undervalued assets requires careful analysis of factors like companies’ cash flows, debt levels, business models and industries, and management competence. Having a long-term perspective and plan in place enables you to tune out short-term noise, and by combining this with professional analysis and patience (or a good investment manager), investors can take advantage of market volatility for real positive long-term gain.

While financial planning in healthy and rising markets grabs more headlines, sustained investing success requires prudence and preparation for the inevitable downturns. Human psychology will always draw us to the highs, but the markets move in cycles, with volatility being a certainty throughout. Rather than reacting during periods of growth, investors should make sure to focus energy during calmer periods on devising effective financial plans. This will help build a framework to navigate any type of market environment ahead, both good and bad. This is exactly what we provide at Featherstone Partners with our boutique investment management support

At Featherstone, our experienced financial advisors have seen their fair share of ups and downs in the markets, and with this experience, they can help create a robust and personalised plan designed specifically to help you achieve your long-term goals. Our guidance provides clients with confidence and peace of mind that they are making the best decisions.

This communication does not constitute tax or financial advice. All information is accurate at the time of writing. The value of investments can go down as well as up. Capital is at risk. Featherstone is a trading name of Featherstone Partners Limited, Old Brewhouse, Yattendon, Berkshire, RG18 0UE, which is authorised and regulated by the Financial Conduct Authority (799741) and registered in England (Company Number 11039522). 

Our clients enjoy the qualities of a smaller, friendlier firm, while benefiting from our team’s experience working at firms such as Goldman Sachs, UBS, Ruffer and Close Brothers. Aligning our interests with those of our clients, we invest alongside our clients and our founders, staff, families and friends are among our largest (and smallest) investors.