The Challenge of Market Volatility
It can swing by hundreds or even more than a thousand points from one day to the next. Stock market volatility like we’re experiencing this year poses a significant challenge for trustees charged with managing trust assets. With such economic fluctuations trustees will want to adapt their strategies to protect the financial health of the trusts they oversee.
Requirements for Managing Assets
Requirements and best practices include:
- Diversify Investments: First, make sure you have a full accounting of all relevant assets, then spread investments across various asset classes to reduce risk. This helps mitigate the impact of market swings on portfolios.
- Stay Informed: Monitor economic trends and adjust strategies proactively, but do not hesitate to consult financial experts to better understand the characteristics, drivers, and outlook of this or other volatile periods.
- Delegate Responsibly. Trustees must exercise reasonable care, skill, and caution in investment decisions and avoid delegating responsibilities to unqualified individuals.
- Manage General Finances Properly. As examples, do not combine trust assets with personal assets and make sure you hit all tax deadlines. Failure to do so can exacerbate the effects of a volatile market.
- Communicate. Effective communication with beneficiaries — especially nervous beneficiaries who are glued to stock market reports — helps avoid surprises, disputes, and mistrust.
Importance of Prudent Investing During Volatile Times
Prudent investing becomes even more critical during periods of market volatility. By following the guidelines set by the Prudent Investor Rule, trustees can protect trust assets from significant losses and ensure the long-term financial stability of the trust. Trustees must remain diligent and prioritize the interests of beneficiaries in their investment decisions.
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