Let us start with this: ultra-high net worth investors get far more right than they get wrong. They also typically have a tremendous amount of discipline, determination and drive. All of these characteristics translate into uncommon levels of wealth and success.
When Risks Turn into Threats
However, ultra-high net worth investors are, after all, human beings — and that means they can and do make investment and wealth-preservation mistakes. One of the most vulnerable points for such investors is when their wealth reaches a point that they become excessively sensitive to portfolio volatility.
Investors start to worry that maybe — just maybe — they’ve made mistakes with regards to their beliefs in investing and even with the advisors they’ve chosen and gotten to know. The risks that they accepted in the past, and which often enabled them to build their wealth, become intolerable threats that keep them awake at night asking questions like:
- Is it possible that my beliefs and decisions about investing are misplaced?
- What if I discover that my cherished life electives and family fortune are at great risk from losses ala the Great Recession or the dot-com collapse?
- Do I wish to continue my emotional roller coasters with the repeating market corrections, or is there a better way to enjoy my life and fortune with less stress?
- What if the advisors that I have carefully chosen and trust are the cause of my recurring pain?
The 4 Belief Pitfalls
The consequences of asking these questions – and being unable to answer them – are more than an immense amount of emotional and psychological pain. The fear and anxiety lays the foundation for a set of four beliefs that can lead to a personal financial crisis:
- Recommendations from brokerage firms – such as Bank Of America/Merrill Lynch, J. P. Morgan, Charles Schwab, Goldman Sachs, etc. – as well as research and analysts lead to more profitable long-term investments.
- Active money managers, or select investment companies and strategies, are beneficial in the long term (10+ years) because they outperform markets, after fees and taxes.
- There exists “safe”, “conservative” or “high quality” stock picking strategies. These promise to offer low risk and volatility, yet with proportionately higher returns over the long term (10+ years), after fees and taxes.
- Some financial gurus, money managers, financial advisors, and many on Wall Street have a unique ability for predicting the future.
The Truth Behind these Beliefs
The truth behind these beliefs is that they are potentially devastating to your life electives, lifestyle and portfolio — especially after considering fees and taxes. In essence they are investment traps and bets, which hardly anyone has proven they can win over the long term. The problem is that those trained by Wall Street actually believe in these beliefs, their reality is what they know and what they have been trained on.
However, that is not necessarily what is in your best interest. Knowing your advisors’ beliefs is just as critical as what you believe in, especially since you entrust them to make decisions, or should we say bets, with your hard-earned wealth.
If you’re just now realizing you don’t know your financial advisor’s beliefs, now might be a great time to get to know them. Schedule in some time to go over some of the questions you have for them.
Consider asking what they have been trained on and what they believe in regards to financial planning. An open and honest conversation is a great starting point to get to know your advisor in this way, which is especially important as they’re managing your money.
No one has a crystal ball, and hardly anyone has been able to time the market successfully over the long-term. Yes, some will succeed short-term, but such bets have proven ill-advised on your money.
Ironically, instead of reducing your risk and growing your wealth, you will likely experience the opposite! The unfortunate part is you may not even know how to detect all of this. You need not look too hard to learn about the continued and ongoing underperformance of investment money managers.
Charting a Safe and Successful Course
The safe and successful way forward is to avoid myths and embrace facts. 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”
(available from Amazon.com at https://www.amazon.com/Protecting-Ultra-High-Worth-Portfolios-Estates/dp/1599326558), we take a detailed look at many pitches that might negatively affect you, and more importantly, we clearly lay out strategies to help you overcome them now and into the future.
If you’re part of an ultra-high wealth family, then “The Art Of Protecting Ultra-High Net Worth Portfolios And Estates, Strategies For Families Worth $25 Million to $500 Million” might just be the read for you. We make these strategies and financial management easy to understand, and after reading, you’ll begin to feel more confident in the room with your financial advisor. You should also be able to ask better questions, depending on your own situation.
A Litmus Test
To wrap up, we would like to leave you with a simple yet effective litmus test to help you separate myths from reality. When mulling over an investment decision, or deciding on how to direct your advisors, ask yourself a fundamentally important question: is the investment or strategy ASSUMING anything?
That is, underlying the investment or strategy, are you betting on a smarter strategy, better stock picking, favorable market timing or insight into the future, and so on? If so, then you should steer clear!
The ONLY sure winner in many such scenarios is the seller of the investment. In our book, we explore this little-known fact by explaining how only 2-4 percent of all money managers actually outperform the markets over time. And it is not even the same group of “wizards” who outperform during each period! Making your investing with them a crap shoot!
If you need help with investment or financial planning, it could be time for a financial advisor (or a new one, if your current advisor doesn’t seem like a good fit anymore). Don’t be afraid to look around for someone who better suits your needs.
Finding financial advisors in the Bay Area is easier than you would think, so don’t hesitate to reach out with any questions you might have.