STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
The insights you’ll discover from our published book 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 book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Table of Contents
Understanding Asset Classes
Hundreds of sectors or industries trade their assets on the stock market. If you look at the S&P 500 index, there are several sectors that are available such as industrials, health care, technology, real estate, and many more. Those sectors can differ based on several aspects. Those aspects are:
Risk vs Return
The stock’s price sometimes depends on the growth, but the other is value. Some stocks will give you a high dividend price, while others use the profit to reinvest. If you are expecting a high return, then you need to risk more.
There are hundreds even thousands of multinational companies on the stock market, from small to large. The value of the company determines the capitalization, that is, the number of shares multiplied by the stock price.
Asset Allocation for Stocks and Bonds
When investing, you have to know about asset allocation. Basically, asset allocation is the way you divide your assets into different classes, which include cash, securities, stocks, and bonds. Based on those allocations, your main goal is to maximize your return and minimize your risk. In allocating your assets, you have to prioritize them from most aggressive to safest, which can affect your return. The portfolio percentage is calculated based on the risk tolerance and time horizon. If you are still confused about asset allocation, here is an explanation:
Ultra Aggressive Portfolio
If you want a return of 9% or more, you should allocate 100% to stocks, which means that your portfolio contains only stocks. This portfolio will provide you with stable capital growth for the long-term. However, in the short-term, the growth for this kind of portfolio varies widely.
Some people do not want to risk their capital. Therefore, they choose the ‘safer’ way of allocating their assets. If you want to keep your capital rather than acquiring high returns, this kind of portfolio is suitable for you. You need to allocate not more than 50% on stocks. Although you may not want to invest in stocks at all, you may be tempted because investing in stocks can offset inflation.
Moderately Aggressive or 80/20 Portfolio
If you have a long-term target and seek a rate of return of at least 8%, you should allocate 80% of your portfolio to stocks and the rest to bonds or cash. This portfolio is considered to have a medium level of risk tolerance.
An Aggressive Portfolio
This portfolio is focused on equities, whose value can change daily. The main goal of this portfolio is to acquire long-term capital growth. This portfolio is usually called a capital growth strategy.
Asset allocation is very important as it will affect your returns. Your assets can be in the form of bonds, stocks, or other investments. In fact, how you allocate your assets can be very crucial. Some investment experts have said that it is better not to allocate 100% of your assets to stocks. This is debatable because if you are lucky in the stock market, you will earn a high return even though it is highly risky.
The 60/40 Wall Street Myth of Stability
All too often we talk to prospects who come to us shocked that they have lost so much money. They were convinced that their advisors had been managing their money well.
But the truth is usually unveiled during vicious crashes like that of Covid-19.
When we look at their portfolios it blows our minds how frequently they are 60/40, or due to neglect by their advisor (neglected to rebalance or were greedy when times are good), they started as 60/40 and they are now 70/30 or even 80/20! No wonder they lost so much money.
Many of the biggest pensions and investment firms use a 60% stock/40% bond asset allocation, in part because it is considered more stable than ones more heavily weighted in stocks, but also more lucrative than ones leaning more toward bonds.
However, what does historical data actually show about the performance a 60/40 split?
From March 2000 until March 2020 – a 20-year period – a 60/40 split earned 5.27% annually while the S&P500 made 4.79%. And that’s before taxes and fees. It actually beat the market. No wonder Wall Street uses this as a cookie-cutter formula to sell high and ultra-high net worth investors on this model.
However, it is also true that from Oct 2007 through March 2009, a 60/40 portfolio lost about 33%. To make things worse, it took this 60/40 model 603 days to recover back to even.
Imagine retiring October 2007 and entrusting your $30 million to a money manager or Wall Street/Big Bank financial advisor who, based on the firms’ pre-determined cookie-cutter investing (YES, that’s how they do it, even the biggest and so-called best), placed you in what amounted to a 60/40 model! Now imaging the collapse of the market and bottoming out March of 2009, similar to what recently happened with Covid-19. You would have lost about $10 million excluding the withdrawals you would have made to sustain your lifestyle. Here you are in October 2007, with the mindset that you will never spend all $30 million you worked so hard to save, thinking how did I get here (with less than $20 million in savings) and will my money last my lifetime!
For high net worth and ultra-high net worth families – especially those within five years of retirement or already retired – you might not have time to make up your losses. Chances are, you also don’t have such an appetite for losses. It is time for you to prepare your portfolio that can ease you to enjoy your ‘nest egg’ day.
If you agree 60/40, 70/30 or 80/20 asset allocation strategies have failed you, but you’re ready to take action, perhaps a short chat with our CEO and Co-founder, Hutch Ashoo is in order. As a fiduciary, independent financial advisor, he advises high and ultra-high net worth investors how to protect their wealth and maximize gains, offering the best of both worlds.
What Does Your Financial Advisor Say about 60/40?
The question is – why would you want to risk losing $10 million of your investments just because so many others are using the same strategy?
And if you have a wealth manager or financial advisor who calls themselves a fiduciary, are they really acting in your best interests if they aren’t sharing this historical performance data with you? Honestly, we truly believe most financial advisors don’t even understand the risks themselves. They are merely foot soldiers to the Wall Street firms and Big Banks. They are given a program to evaluate you and then place your money is what is most likely 60/40. Then ‘stay the course is the best advice they have to offer while you’re losing millions?
Pillar Wealth Management takes our fiduciary duty very seriously. We refuse to blindly follow what everyone else is doing when real performance data from history shows how fraught with peril that approach really is.
The 60/40 approach fails miserably in a major market crash. And in the current crisis, it is failing again, down over 12% as of March 17th, 2020 since the peak in February.
So shouldn’t we be looking for something better?
What to Do Differently
We want you to make good money during good times but not lose it all during bad times.
We have developed models to help our ultra-high net worth and high net worth clients capture most of the gains but few of the losses. We custom build a model for each client since prospects come to us with different investment strategies, and we don’t blindly sell based on a cookie-cutter program. As such, we can achieve a level of performance similar to 60/40, but while controlling the down-side risk!
In other words, performance was strong in good years, but held its ground in the downturns.
We are so focused on principal preservation that we wrote the book about it, The Art Of Protecting Ultra-High Net Worth Portfolios And Estates, Strategies For Families Worth $25 Million to $500 Million. You can buy it on Amazon by clicking here.
How Is Your Portfolio Doing During the Current Crisis?
If at this starting point you are wondering if you have the right financial advisor to truly serve your ultra-high net worth needs then we urge you to download our free 2020 Covid-19 updated book “The Ultimate Guide To Choosing The Best Financial Advisor, For Investors With $5 million to $500 million liquid assets by clicking here.”
Imagine that something worst happens because you are in the bear markets where average annual prices of securities drop by 20%. If you’re feeling the pain of loss that many others are experiencing and your wealth manager’s best advice is to ‘stay the course’ and trust that ‘markets always go up over time,’ we would respectfully suggest that you need a new wealth manager.
Those boilerplate platitudes don’t serve anyone well, especially ultra-high net worth investors who don’t want to wipe out the last ten years of growth because their advisor stuck them with a 60/40 split and told them it would hold up.
It won’t. And it isn’t.
As an ultra-high net worth investor, you deserve better.
60/40 asset allocation is flawed. It’s one reason why Pillar Wealth Management refuses to sort investors into cookie-cutter, one-size-fits-none investment plans.
You deserve a custom-prepared investment developed specifically to you and your wealth goals.
To find out more about our custom investment plans for high and ultra-high net worth clients, we encourage you to have a short conversation with our CEO and Co-founder, Hutch Ashoo. With over 30 years of experience in bad markets as well as good, Hutch can give you the objective, independent guidance you need right now.