Best Asset Allocation for Ultra-Wealthy Investors – PillarWM

Given the massive number of mutual funds, stocks, and bonds there are to choose from, opting for the right set of investments can be a huge challenge if you don’t have the requisite experience and skills.

If you fail to approach asset allocation appropriately, you can risk your own ability to increase your wealth and create a retirement safety net. So, how should you go about with asset allocation? Instead of selecting stocks, you should start by determining what composition of mutual funds, stocks, and bonds you want to have.

This is the process of asset allocation. Ideally, you should hire a qualified and experienced financial expert to guide you about the best asset allocation.

In our ultimate guide for investors with liquid wealth worth $10 million and above, we discuss how you can select the top financial expert who can conduce the best asset allocation for you.

At Pillar Wealth Management, we are an independent wealth management company that solely caters to high net worth and ultra-high net worth individuals and families with liquid assets worth between $5 million and $500 million. We provide a range of investment and financial advisory services such as investment management, risk management, retirement income planning, tax planning and management, asset allocation, estate planning, and much more. Our highly knowledgeable and dedicated financial advisors are committed to helping our affluent clients accomplishing all their short and long-term financial objectives and becoming financially secure. Contact our team to have a detailed discussion about your financial objectives and start your journey of reaching financial serenity.

The Basics of Asset Allocation

Asset allocation refers to an investment portfolio approach that aims to create the perfect balance between investment returns and risks by allocating a portfolio’s assets among major groups such as bonds, cash, stocks, derivatives, and real estate. This allocation, or division, is generally carried out in accordance with your risk tolerance, investment horizon, and of course, your financial targets.

Because each asset group provides differing levels of returns and risk, each will yield different results over time. For instance, if a particular asset class rises in value, another asset class might decline in value or might not rise by the same amount. Some people believe that this technique results in moderate levels of gains. However, for a majority of investors, it’s the ideal strategy to prevent a significant loss if things go wrong in a particular asset category.

Comprehensively speaking, the best asset allocation distributes risk among various asset categories that perform independently during different economic situations. To get more information on asset allocation, order a free copy of our hardcover book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million to $500 Million.

What Are the Three Important Elements of the Best Asset Allocation?

There are several kinds of asset categories because there are so many ways to divide assets. For instance, you can break down assets by their type (such as bond versus stock), purpose (such as value vs growth), location (such as the US versus international) etc.  So, if you are thinking, what are the three important elements of asset allocation, continue reading to get your answer.

Historically, the three important asset allocation elements have been fixed income (bonds), equities (stocks), and cash equivalent or money market instruments. Read our special guide here to find out why you want asset allocation in bonds, equities, and cash, not simply diversification. However, now many financial experts include commodities (such as gold, artworks, etc.), real estate, futures, other financial derivatives, and even cryptocurrencies to the asset category mix.

Let’s take a deeper look into the important elements of asset allocation.

1. Fixed Income (Bonds)

Fixed income investments pay out a given percentage of interest over a set period of time before returning the investors principal. Even though fixed income offers higher stability than stocks, they tend to yield lower returns than stocks and other riskier asset categories. Many investors use fixed income assets such as bonds to create a steady and safe stream of income.

The major sub-categories of fixed income assets include:

Location – Fixed income assets can be divided into international, domestic, or other location-based asset class.

Issuer – Fixed income assets are generally divided into corporate, municipal, or federal asset categories based on their issuer.

Credit Rating – Fixed income assets can be divided into junk, mid-grade, or high-grade bond classes depending on their credit rating.

2. Equities (Stock)

Equities, or stocks, represent ownership of a publicly held corporation. The majority of the investors invest in stocks to get long-term capital gains, however many stocks also create income.

The major sub-categories of equities include:

Size – Stocks can be divided into large-cap, mid-cap, small-cap, or

other size-based asset categories.

Location – Stocks can be divided into local, global, emerging market, developed market, frontier market, or other location-based asset categories.

Strategy – Stocks can be divided into income, value, growth, or other strategy-based asset category depending on the kind of corporation and its objectives for shareholders.

3. Cash and Foreign Currency

Cash is one of the most popular asset category used during times of significant instability as it’s the least risky asset to have. Along with cash, many investors also use one currency to buy another currency on the forex market to postulate on changes in the relative valuation.

Cryptocurrencies can also be another emerging asset category over the next few years, especially as exchange-traded funds (ETFs) and futures markets make them easier to buy and keep.

Want to know which asset category is best suited to your financial goals? Click here to speak to our financial advisors and get the answer to this question!

How Much Cash Should You Have in A Portfolio?

If you are new to investing, you might be interested in finding our much cash you should have in your investment portfolio.

Continue reading below to find out how much cash you should ideally have in your portfolio.

Calculating the Amount of Cash to Have in Your Portfolio

For many people, the absolute minimum amount of cash to keep on hand is an emergency fund that can cover regular expenses for a period of at least six months. Keeping an emergency funds help you in getting through unforeseen circumstances or challenges without having to dispose off your assets. Having no option but to sell your assets at the wrong time can result in potentially high taxes and less than optimal returns – possibly during a period when you’re already in a financial problem.

Thus, it makes sense to apportion nothing lower than 5 per cent of your investment portfolio to cash. However, several competent financial experts may recommend you keep somewhere around 10 to 20 per cent of cash on hand. Evidence suggests that the highest level of risk-return trade-off happens somewhere around this point of cash allocation. If you combine fixed income securities with cash, the highest risk/return level is a little higher, somewhere near 30 per cent. So, for high net worth investors who have a portfolio of $5 million, this can mean anywhere ranging between $250,000 and $1.5 million.

Why You Should Have Cash in Your Investment Portfolio?

Here is a list of reasons that explain why it’s important to keep the right amount of cash in your portfolio.

1. Gives You Financial Peace of Mind

One important role that cash has in your portfolio is to function as a liquidity reserve you can draw from when stock exchanges get closed, or markets seize for months at a stretch. In such situations, it’s almost impossible to convert your investments into liquid cash. 

In such situations, the cash goes beyond giving you the ability to acquire profitable assets. Rather, it works and an insurance plan that has got your back when you need to pay the bills and can’t tap into your other investments. A good financial advisor will develop an efficient portfolio management system to ensure you have the cash you need to make it through the worst of times.

2. Allows You Spend A Comfortable Retirement

Managing cash around your living expenses is at the crux of your retirement income planning. It gives you an idea about how much money you need to retire comfortably, which helps you set your wealth-building targets. In our handy guide here, we discuss the five paradigm shifts you need to make to maximize investment performance that will ultimately help you live a peaceful retirement.

3. Assists with Strategic Investing

Having the right amount of wealth in cash will ensure that you don’t need to sell your assets or investments at a time when it’s best not to sell them. This is particularly true when the investments you own need to be sold off at a loss or when selling an asset will result in an undesirable capital gains tax at a time when you’re already struggling with financial issues.

Moreover, when you have cash in your portfolio, you can easily purchase assets when they are cheaper following recessions or bear market conditions. This helps in growing wealth. For more information on the strategies needed to grow wealth, read our useful guide here on improving portfolio performance.

What Is A Balanced Portfolio Asset Allocation?

There are numerous asset allocation models that utilize several kinds of investment tactics to create capital gains. Most of these models lie somewhere between four primary objectives: creating income, preserving capital, growth, or balance. In this section, we will be taking an in-depth look at the balanced portfolio asset allocation.

The balanced portfolio model aims to create a balance between current income and long-term capital growth. The perfect result is a combination of assets that create cash as well as increases in value over time with minor variations in quoted principal value.

Balanced portfolios usually allocate assets between shares of stocks in top corporations, which pay cash dividends, and medium-term investment-grade fixed income obligations. Another component of balanced portfolios are real estate holdings through REITs.

For many investors, this model is the best choice, not because of financial reasons but because of emotional reasons. In addition, a balanced portfolio is vested for the most part, which means that very little is held in cash or equivalents unless the investment manager is entirely sure that there aren’t any lucrative opportunities offering an acceptable degree of risk.

At Pillar Wealth Management, we have been offering customized asset allocation plans to wealthy individuals for more than thirty years. Get in touch with us to determine if the balanced asset allocation model is suitable for your financial needs and requirements.

What Is the Best Asset Allocation?

Suppose you are wondering what is the best asset allocation. In that case, you need to first know that asset allocation for millionaires is usually more aggressive than the regular investors with the purpose to generate higher returns.

Nevertheless, this doesn’t mean you shouldn’t invest smartly. We recommend you invest 40 per cent of your liquid wealth in low-risk investments and the other 60 per cent in high-risk investments. This way, you can make sure that your portfolio generates the highest possible returns and fluctuates less in economic slowdowns.

An intelligent portfolio asset allocation is what you should have to secure yourself from volatile and unstable market conditions. Having a financial advisor can really help you through this process. But remember that not all financial advisors have the skills needed to meet the needs of wealthy investors like yourself. Thus, you need to properly research your financial advisor’s background, credentials, and qualifications before you start working with one. Our useful guide here can help you in selecting the right financial advisor.

Enlist Pillar Wealth Management

At Pillar Wealth Management, we have a combined experience of over six decades in offering wealth management and financial advisory services to high net worth and ultra-high individuals and families. We make sure that we provide you with customized financial strategies that can help you become financially secure and stable. So, what are you waiting for? Get in touch with us to see how we can help you!

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