In our life-long experience as wealth management advisers, we have observed that investors of all kinds – including some ultra-high net worth investors — tend to focus entirely on the return of their individual investments. However, this approach is fundamentally flawed and puts investors at serious risk.
Simply put: investing is war, and as such it must take into considering short-term tactics and long-term implications. Otherwise, like armies without a strategic battle plan, investors are forced to react to a flurry of events. They cannot make prudent decisions to react to their enemies’ moves, or ensure that they are heading towards their ultimate objectives.
And make no mistake: investors do indeed have enemies. Not in the same context as soldiers do, but the fundamental nature of investing is adversarial. One investor may bet on a security so they can obtain higher ground and profit. Yet another investor is heading in the opposite direction on the same security to take cover, and avoid being a proverbial sitting duck for an imminent attack. Which investor will win? Obviously, we cannot declare a winner without knowing the specific facts. However, we can state without hesitation that the investor armed with a comprehensive investment strategy has a substantially greater chance of victory.
Investment Policy Statement
As we explore further in our recently published book “The Art Of Protecting Ultra-High Net Worth Portfolios And Estates, Strategies For Families Worth $25 Million to $500 Million”, the battle strategy that investors need in order to know when they should take a hill — and when they should head back down — is captured by the Investment Policy Statement.
The Investment Policy Statement is a unifying statement of financial goals and objectives, and concerns itself with net return after taxes, expenses, fees and inflation. It allows investors to deal with changing financial tools and investments over various time horizons: year to year, decade to decade, and generation to generation.
8 Key Elements
In order to function as a reliable strategic battle plan, the Investment Policy Statement should cover 8 key elements:
- How much risk should be accepted in the portfolio
- The long-term performance target for the portfolio
- Ongoing liquidity and spending needs, cash flow in/out
- Non-repeating cash flow in/out items
- The asset allocation to achieve elements 1 and 2 noted above
- Rebalancing criteria and policies
- Assessing the probability of long-term success
- Identifying how money should be managed
Going One Step Further
We also advise that investors go one step further, by testing the probability of achieving multigenerational portfolio goals in light of different Investment Policy Statement strategies. Finally, we highly recommend re-testing these probabilities on an ongoing basis. We re-test our clients’ success rates every quarter since as we all know, the only constant in life is change! In addition, when adjustments, we along with our clients, prefer they be minor changes vs fire drills.
About Pillar Wealth Management, LLC
Haitham “Hutch” Ashoo and Christopher Snyder are privileged to have worked with ultra-high net worth families, some of whom attained wealth reaching $400 million, helping them achieve a positive change in their lives and finances. They co-founded Pillar Wealth Management, LLC, an independent, fee based, private wealth management firm. As their clients’ go-to advisors, they are brought in to help with investment management, strategic planning, asset allocation, risk control, and tracking of their clients’ progress towards life-goals. Their services are provided to a limited number of clients. They only accept a new client when they have determined that there is mutual admiration and respect and only if they can add substantial value to the client’s financial life. Learn more at http://pillarwm.com. You can reach us at PWM@PillarWM.com