HNW (High Net Worth): What Does It Mean and What Do HNW Investors Do?

At Pillar Wealth Management, we work with high net-worth people having $5 million to $500 million in liquid assets. We are a fiduciary advisory firm and offer custom wealth management services for high net worth and ultra-high net worth clients. We can help you manage alternative investments, private capital, liquid assets, estate planning, insurance planning, tax planning, and more. Book a free consultation with us to find out how we can help you.

In this article, we will discuss:

• HNW meaning – what does it mean to be a high net worth person?

• HNW investors – what do high net worth investors do, and how do we help HNW clients?

What Does It Mean to Be High Net Worth Individual?

The term, high net worth, is generally used to refer to people having liquid assets of around $1 million and above. These people work with private wealth management companies to manage their assets and grow their value. Generally, the higher your net worth, the more help you will need in safeguarding your assets and reaching your goals.

If you have a high net worth, we recommend you read our guide on finding a financial advisor for managing $5 million to $500 million in liquid assets. It will help you understand common mistakes that many high net worth investors make when choosing a financial advisor and how it can interfere with your wealth management objectives.

What Do High Net Worth Investors Do?

Being an HNW individual isn’t all fun and games. It requires plenty of focus and effort to manage your liquid assets responsibly and make the right choices to protect your family’s future. Fortunately, with the right wealth management advisors on board, you can expect them to do most of the hard work on your behalf. A qualified wealth manager will be able to help HNW investors with the following:

Portfolio Management

As a high net-worth person, you need to build a robust portfolio that allows you to make strategic investments and grow your net worth. You can choose between active and passive investing strategies here. Active management involves timing your investments to take advantage of changing market conditions and beat the market. Active managers can help you generate higher short-term capital gains, but they also take on more risk.

In comparison, passive managers buy and hold liquid assets in your portfolio to focus on long-term capital gains. There is minimal trading involved here. Passive investing is also known as index investing. This is because passive managers try to replicate a broad market index and help you generate the same returns as the market.

To learn more about how active and passive investing differ from each other, click here to talk to our wealth managers.

Tax Planning

As a high net-worth investor, you also need to hire a tax advisor who can help you file for taxes and reduce your tax burden. How much you pay in taxes largely depends on the type of investments you make. For example, if you are a trader who makes short-term investments and buys and sells assets quickly, you will have to file taxes for short-term capital gains.

The tax rate for these gains is higher than the rate for long-term capital gains. As per current tax rates, high net worth individuals with an annual income of more than $518,400 are taxed at 37% on short-term capital gains. In comparison, the tax rate for long-term gains is 20%.

Tax planning can have major implications for your investment goals. If you pay too much in taxes, you could lose a significant portion of your earnings. A qualified wealth manager and tax advisor can help.

Read our guide on enhancing your portfolio’s performance to reach your goals and learn more about this.

Estate Planning

Estate planning involves managing the distribution of your assets to your next of kin in the event of your death or incapacitation. For HNW individuals, estate planning is crucial to making sure your assets get distributed as per your wishes. You can use legal instruments such as a Will or a Trust to control how your assets are distributed and protect your legacy.

It also helps your heirs manage complications such as estate tax.

Business Succession Planning

High net worth business owners may need help preparing a succession plan. This plan allows you to identify who gets ownership of your business after you retire or move on to other prospects.

A good business succession plan lets you transfer ownership in smoothly. You will also need a financial advisor to help you determine how you want to sell your business. There are several options here. You could receive a cash payment, or you could receive company stock. Getting paid in company stock comes with its limitations.

Firstly, stocks are volatile assets that can decrease in value overnight. Secondly, there may be restrictions on the stock certificates you receive that prevent you from selling the stock for 6 months or so. This can expose you to a great deal of risk.

If you are transferring ownership to someone in the family, you’ll also want to be careful that the sale doesn’t cause the value of your family’s assets to decline.

Figuring out how to navigate these challenges is vital to securing your financial future. To learn more about this, talk to one of the wealth managers at Pillar Wealth Management.We can help you create a business succession plan that allows you to secure your future and hand over your business to the right person.

How Can We Help HNW Individuals?

As mentioned at the onset, Pillar Wealth Management works with HNW clients to provide tailored wealth management solutions. Here are some of the things our wealth managers can assist you with:

Control Your Risk

Investment risk is contingent on several factors. For instance, when we discussed active investing, we mentioned that this investment style involves significant risk. This is because an active investor tries to buy and sell assets by predicting market movements. These activities can go both ways. If they get it right, you can potentially earn high returns. Conversely, you may also incur a capital loss.

At Pillar Wealth Management, we use a combination of active and passive investing styles to maximize your returns and control your risk. Based on your investment goals, we can develop a strategic investment strategy that helps you stay within your risk threshold while earning your desired returns.

We also keep an eye on other factors that influence your portfolio risk. For example, we place a lot of emphasis on asset allocation and portfolio diversification. We aim to make sure your portfolio is distributed across stocks, bonds, and cash. This allows you to hedge against investment risk and control your losses.

We can also help you use your capital losses to offset your tax costs.

To find out which strategies we adopt to safeguard your net worth, order a hardcover copy of our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million!

Reduce Your Costs

At Pillar Wealth Management, we offer holistic wealth management solutions. This means that we focus on every aspect of wealth and asset management. Besides controlling risk and helping you earn returns, we also focus on lowering your investment costs.

After all, if you keep losing your returns to high investment costs, it can interfere with your goals and put your financial security at risk. Some of the costs we can help you control include:

• Capital gain taxes

• Bond sale spread

• Active vs. passive management costs

• Internal costs

• Commissions

• Your financial advisor’s fee

With our help, you can manage your investment portfolio in a more cost-effective manner.

To learn more about these costs, we suggest you read our guide on finding a financial advisor for ultra-high net worth individuals with over $10 million in liquid assets.

Monitoring Your Portfolio for Changes

Financial markets are always in flux. They respond to economic conditions and change accordingly. These shifts can increase or decrease the value of your investment portfolio. Keeping track of these shifts is an important part of wealth management.

At Pillar Wealth Management, we monitor market conditions to see how they influence the net worth of your assets. For instance, if your portfolio is heavy on stocks, then factors such as recession and inflation can impact its value. These economic changes hurt the stock market and cause stock prices to decline.

If we see that your portfolio is suffering, we can help you make adjustments to reduce your losses. We can also help you rebalance your portfolio to reflect changes in your goals.

Preparing for Unforeseen Circumstances

Qualified wealth managers can also help HNW investors prepare for unforeseen circumstances that can hurt their portfolios. At Pillar Wealth Management, we do this by carrying out portfolio stress tests. These tests make use of historical data going back to 1925. It accounts for major events such as the Second World War, the Great Recession, the Tuberculosis epidemic, the Financial Crisis of 2008, etc.

We use this data to determine how these events hurt financial markets. Next, werun simulated scenarios that depict how your portfolio will suffer if similar events occur again.  This technique allows us to prepare for unexpected events and reduce their impact your assets’ net worth.

Tracking Your Goals

Many wealth management firms ask you about your investment goals at the onset and then forget all about them. At Pillar Wealth Management, we make it a priority to keep your goals in sight when preparing an investment strategy for you.

We also track the progress of your goals and see how close you are to achieving them. If it reveals that you are not getting any closer to achieving your objectives, we can revisit your investment strategy. Based on our findings, we can make the necessary changes to your investment strategy and bring you back on track.

Helping You Achieve Financial Serenity

Very few wealth management firms understand the importance of helping their clients achieve financial serenity. They focus on aggressive investment strategies that can be very costly and expose you to an unnecessary amount of risk. This approach is often the opposite of financial serenity. Financial serenity refers to achieving your goals, protecting the net worth of your assets, and avoiding any investment risks that don’t get you closer to your objectives.

When you switch to this mindset, you’ll find yourself spending a lot less time worrying about your investment portfolio. To learn more, read our exclusive guide on the 5 critical shifts HNW individuals should make to improve their portfolio performance.

Get Help with Wealth Management to Achieve Your Goals

Effective wealth management is vital for HNW individuals. It can help them reduce their risks, increase their returns, and control their costs. Pillar Wealth Management helps HNW clients and investors with $5 million to $500 million in liquid assets realize their investment goals.

As a fiduciary advisory firm, we also put your interests first and ensure you get your money’s worth.

Click here for a free consultation and learn more about our services.

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