7 Ways to Not Lose It, and 7 Ways to Grow It
Let’s put this in perspective: As a person who has built up wealth or sold a business to the tune of eight or nine figures, you’re in the ninth inning and you’re up by four runs. You haven’t won the game yet.
You could still lose, in fact. And you feel that uncertainty from time to time. But you are safely ahead, and let’s not forget that. The right wealth manager will all but ensure your lifelong victory.
After spending thirty years managing portfolios ranging from $5 million to $500 million, Pillar Wealth Management has seen it all. We’ve helped high net worth and ultra-high net worth families through the ups and downs of market cycles, and you can talk to us today.
Strategies For Families Worth $5 Million To $500 Million
The Ultimate Guide To Choosing the Best Financial Advisor
The insights you’ll discover from our published guide will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this guide helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
More than anything else, you should be focused on preserving your wealth for the long term, beyond your lifetime. You should be as obsessed with not losing your wealth as you might be about growing it.
Table of Contents
Table of Contents
What follows are 7 ways to not lose your wealth, and 7 ways to grow it. The name of the game is preservation. It’s all about improving the performance of your portfolio to keep it strong.
7 Ways to Not Lose Your Ultra-High Net Worth Status
Don’t Entrust Your Finances to the Wrong Advisor
Ultra-high net worth investors should only work with fiduciary and independent wealth managers. Not big banks or brokerage houses. Read this to see why. You will steer clear of most of the other six items on this list if you find the right financial advisor.
This is the most important decision of your life, besides your spouse and kids. Because this decision affects your spouse and kids in almost every way possible.
For help finding the right financial advisor, get our free ultra-high net worth eBook, The Ultimate Guide for Choosing the Best Financial Advisor for Investors with $10M – $500 Million Liquid Assets.
Minimize Your Costs
There are at least eight ways you can lose big by paying unnecessary taxes, fees, and other costs if you get stuck with the wrong financial planner. All eight are in the eBook just mentioned, but you can see 6 of those avoidable costs and how they affect performance by reading this.
For example, one seldom discussed hidden cost is called margin interest.
If you’re in need of some cash liquidity for additional investments, one way to get it is to borrow against your own assets. This is sort of like a home equity line of credit, but with your investments instead. The money you borrow goes on margin.
When you do that, you have just incurred two new costs.
First, you’re now paying interest on money you already had, just like any other loan. And second, if your advisor is paid as a percentage of money under management, your fees will increase because your advisor is now managing all your money, plus the money you just put on margin.
That’s just one way a non-fiduciary financial advisor can extract extra money from you, without you even realizing it.
Avoid Hedge Funds and Private Equity
Both of these are high-risk, non-liquid ways of investing. Once your money is invested, you can’t get it back, sometimes for as long as ten years. With that kind of structure, you would hope to realize a substantially better performance than what you could earn using more conventional investment vehicles.
Well, if you look at hedge fund and private equity data, you’ll see that they rarely outperform common market indexes. As one study found, “the returns in hedge funds are more volatile than both the returns of mutual funds and those of market indexes.”
So they’re more volatile, often underperform, and due to higher risk, often end up losing your money – negative growth. That’s like the opposing team hitting a grand slam in the ninth inning because you left the wrong pitcher in the game too long. Not what you want. Pull the pitcher. Avoid hedge funds and private equity.
Plus, hedge funds have very little regulation, almost no transparency, and shoddy reporting. You’re putting your money in a black box, and hoping it multiplies before you’re allowed to look at it again.
Minimize Angel Investing and Venture Capital
Like the previous section, these popular investment options for high net worth people generally fail to deliver higher than normal returns. Often, they underperform or even lose your money. These are high risk investments, and often lock your money up for many years before you see any returns – if ever.
You might decide to dabble in one of these now and then just for fun, with smaller amounts of excess capital you might want to play around with if that’s something you enjoy. But don’t stake your future on it. Try this instead.
Don’t Hoard Wealth in Concentrated Stock Options or Single Commodities
If you have large portions of your net worth tied up in a single company stock, such as your own business or the company you work for, you are at high risk for a massive and sudden loss of wealth. Same with people who bet it all on something like gold. It has happened to numerous ultra-high net worth individuals throughout history.
The value of stock in a single company can fluctuate wildly. And all it takes is an industry disrupter to come in and render your prized company’s product obsolete, and the wealth you’ve tied up in all those stock options will plummet.
We generally recommend selling stock options and re-investing the proceeds in diversified, reasonable-risk, long term investment plans – especially as you get closer to retirement.
Don’t Do Any Trading
Even if you manage to make a little money as a trader, you won’t likely do better than you’d do using strategic passive investment principles like what Pillar Wealth Management uses.
So for all the time it takes to conduct your own trading, where’s the payoff? And beyond that, all these short term trades carry higher taxes and extra fees.
Your net growth from all this trading will likely be middling to unimpressive, at best.
Avoid Annuities and Be Wary of Other Investment Products
In general, investment products like annuities are created to benefit the seller, not the investor. Do you think they would offer these products if it didn’t make them money?
Annuities in particular lock your money up, often forever so your heirs get nothing, and charge high fees and penalties if you try to get out of them. And, they don’t perform better than conventional investing. Again, it’s just not worth it.
Preserving your portfolio is paramount, and it means educating yourself as much as choosing the right financial advisor. If you’re interested in learning more about protecting your ultra-high net worth status, check out our hardcover book, now available for free.
7 Ways to Grow and Preserve Your Long Term Wealth
Prioritize Asset Allocation
Asset allocation is the single most important determiner of investment growth. This is not an opinion. It has been studied. The most famous study came from Brinson, Beebower, and Hood, which found that over 90% of the variation in your portfolio’s investment performance can be traced to your asset allocation.
90%. Due to this single factor.
You have to take notice anytime a study finds 90% in favor of any one thing. Because even if the study was way off, and it’s ‘only’ 70%, you’re still looking at this one single factor dwarfing all the others.
Yet, what do so many investors get fixated on? Market timing, buying, holding, selling, commodities, blue chips, foreign stocks, ‘hot’ companies, ‘hot’ money managers, 5-star mutual funds – this is what everyone talks about. But it’s not what works.
Pillar Wealth Management understands the importance of asset allocation, and we’re happy to help you through the finer points. Schedule an appointment to start the conversation.
Rebalance Every Quarter
Once you’ve settled on the asset allocation that is right for you, you’ve got to maintain it. As various components of your portfolio perform at different levels, your percentages devoted to equities, bonds, cash, and other sectors will start to fall out of alignment with your ideal allocation.
Every quarter, you must rebalance back to the ideal. This is hard. It requires you to sell your winners and buy more lower performing investments. It goes against your instincts and emotions. But over the twenty and thirty year periods of time you are planning for, this is what produces the best performance.
Rebalancing every quarter also takes time, so it’s easy to let it slip. If you want to preserve your wealth, put it on your calendar and make it a priority.
This is distinct from asset allocation. Within your equities, you should have investments in a variety of holdings. Within bonds, you should have a mix of municipal bonds, treasury bonds, and bonds of various ratings. Diversifying is the opposite of entrusting 70% of your wealth to stock options in a single company.
Prioritize Asset Allocation
Wait, is this a misprint? No, it’s a deliberate repetition.
Yale endowment fund manager David Swensen grew Yale’s fund from $1 billion in 1985 to $22.9 billion in 2008. He averaged nearly 14% annual growth through two recessions and Black Monday. Seems like someone we should listen to.
Swensen says asset allocation is the most important investment decision of your lifetime. He says this is how you succeed.
For ultra-high net worth investors like you, success means wealth preservation. Not losing it by avoiding bad decisions, and growing it by making smart ones. Proper asset allocation is a smart decision. Whichever wealth manager you work with, make sure they get this!
Opt for Strategic Passive over Active Management
Another area often overlooked by high net worth investors is passive index investing. The great majority of active managers fail to outperform their benchmarks.
What matters for ultra-high net worth people like you is preserving your wealth beyond your lifetime.
And over time periods that long, essentially zero actively managed funds outperform the benchmarks. The longer you hold on to an actively managed fund, the less likely it will be to continue to outperform the market.
Plus, actively managed funds charge higher (sometimes much higher) fees. For ultra-high net worth investors, higher fees can cost you hundreds of thousands, or even millions, of dollars over your lifetime.
And your reward for these higher fees is lower performance. This is another of the eight costs you want to avoid, as mentioned in the earlier section.
Plan Ahead for Unexpected Life Events
Life doesn’t spare anyone, including the affluent. Things can take a turn for the worse at any moment. Some of the turns can upend your finances by costing a lot of money. Others may not cost as much, but they will alter the direction of your life.
These can include:
These and many other life events can happen to anyone. With smart planning and help from a fiduciary expert wealth manager, you can build room for these into your portfolio planning process.
If you’re ready to take a hard look at your portfolio and reassess your family’s needs, reach out to Hutch Ashoo, Founder and CEO of Pillar Wealth Management.
Prioritize Asset Allocation
Okay, okay, we get it. Hopefully.
Do you know the specific asset allocation that will best accomplish all your long term goals and lifestyle dreams? If not, do you know how to figure it out? This is the question you should want answered. It drives every other investment decision you’ll make.
Too many big banks and large firms will tell you to shoot for a 70/30 or 60/40 equity to bond ratio, or something close to that. And too many big banks and large firms are wrong. They tell that to too many who come through their doors. Because they don’t create customized investment plans.
If you need help determining your optimized asset allocation (hint – everyone needs help answering this question), seek out an expert wealth manager who works exclusively with high net worth and ultra-high net worth individuals and families.
Pillar Wealth Management is ready to speak with you about your goals and dreams. We offer a free, no-strings-attached conversation to determine how we can help your family.
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