High Net Worth Investing Advice in the Tumult of a 2021/2022 Post-Covid Economy
It’s easy to let your guard down now that covid appears to be mostly in the rear view mirror. But when it comes to high net worth investing, extremity is never desirable, and we are living in extreme times, with a potentially catastrophic combination of trends never before seen. There has never been a better time to get the 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning.
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.
Markets are reaching stratospheric levels. Bonds yields have sunk to all-time lows. Serious inflation may be returning for the first time in decades. Supply chains remain disrupted. Real estate prices are soaring again.
Investing with ultra-high net worth in this environment must be done more smartly than at any point in the last ten years, which lulled many into complacency before covid reminded us to pay attention. Make the wrong choices now, and depending on what happens next, it could take years to recover – if ever. If you want to talk to an expert about how to protect your wealth, schedule a free consultation with one of our founding wealth managers, who work exclusively with investors who have $5 million to $500 million in liquid assets.
Here’s a quick recap of current trends, followed by the best and worst advice you could hear in this critical time in history.
Table of Contents
Financial, Economic, Political Tumult in 2021 and Beyond
Record-Breaking Stock Market
How high are the markets? Stocks are higher than at any time in history, and they have continued to rise even with high unemployment and a jittery economic recovery after covid.
Are we in another bubble? No one knows the future and it’s impossible to predict with any certainty. But we do know that bubbles happen, and some burst bigger than others. We also know that the stock market has, for some time now, been behaving contrary to how a lot of people are experiencing life, financially speaking.
Historic Low Bond Yields
Adding to the discomfort of the moment, bonds are at historic lows, with 10-year Treasury yields dipping down to 0.5% at their low point in 2020. Before that, yields had never dropped below 1%.
When the market crashed in 2000, one of the saving graces was the high bond market. But in 2020 when the covid recession began, we didn’t have that protective cushion.
What will happen in the future if a stock bubble bursts while bonds are so low, and we endure a prolonged recession or depression?
Making this moment even more frightening is the rising inflation, which has remained higher in 2021 than any year since 2008 – right before the Great Recession.
Inflation can wreak havoc on an economy in ways that affect everything, but it’s been so long since the hyper inflation of the late 1970s that most people today have no comprehension of the damage it can do.
Rising Real Estate
One way inflation is showing up is in the worst possible place for people wanting to buy – real estate. Prices are going skyward, rising 13% nationwide in 2021 and projected to continue rising.
Put all these trends together. A surging stock market that seems disconnected from reality. A super low bond market. Inflation like we haven’t since the Great Recession. Rising real estate prices.
Perhaps our political leaders have a solution. Or, perhaps not.
Again, there’s no way to predict what will happen politically, but there is talk of breaking up big tech companies. How would that affect the surging stock market and the rest of the economy? There is talk of raising the capital gains tax, which would have a particularly strong effect on those with ultra high net worth. Some are also proposing ending the ‘step-up’ exception for inherited wealth. This would mean you would owe taxes on gains accrued from wealth you inherit.
All this is just in the discussion stage right now. The point is – these are storm clouds we have never seen gathering strength all at the same time.
What should an ultra high net worth investor do in response? Schedule a free consultation with a Pillar wealth manager.
3 Smart High Net Worth Investing Responses to Heightened Uncertainty
What should a smart investor with high or ultra high net worth do? What’s required is a shift in investment philosophy from returns-based investing to goals-based investing.
What matters to you in life, as it relates to money? If you achieve all those things, then you win. Here are three primary shifts to help adjust your approach to investment.
1. Stop Obsessing about ‘Maximized’ Returns
Everyone loves earning 20% or 30%. This kind of growth happens sometimes, and when it does, some investors start to think they have a right to expect it all the time, across long time spans.
But if you try to invest in such a way as to chase after a particular rate of return – usually one that’s higher than is reasonable – you will end up costing yourself. We have seen this over and over and over again from investors who were managing their own portfolios, or who trusted financial advisors who just followed Wall Street’s methods.
We have had people come to us from other advisors and investment firms where they were 100% invested in stocks. 100%! The worst investing advice you could hear right now may be to increase the amount of your portfolio invested in equities.
So, is there a way to maximize your investment growth? And can you find an advisor who can deliver it?
This is the wrong question. Why? Because it has no time horizon. Do you want maximize growth for one year? Five years? Ten years? The rest of your life?
The strategies for achieving each of those are incompatible and contradictory.
Does that make sense to you? What you must do to maximize growth for one year is the opposite, in many ways, from what it takes to maximize growth over a lifetime. You cannot do both.
Thus, you need to shift away from pursuing some perceived ideal rate of return, and begin pursuing goals-based investing.
Best investing advice: Stop pursuing a specific return. Pursue goals instead.
Worst investing advice: Go for broke – increase your portfolio’s stock percentage.
2. Escape from Wonderland – Go Back Up the Rabbit Hole
One person recently came to our office to discuss his situation. He worked in tech and has about $12 million. He believes he is set for life, no matter what happens. He even believes that if he loses a bunch of his money to a downturn, he will just make it all back.
This is one of the most pernicious outcomes from the covid recession. Because the market rebounded so fast, people like this investor gained a false sense of confidence that investment losses always return.
We had one couple come to us after the 2000 dotcom recession with $5 million in liquid assets. They used to have $32 million. Think about the magnitude of that loss.
They were planning to retire early. Now, they couldn’t. Their entire life plan had to change. It is possible to lose so much you will never make it back within the time that matters.
That’s the important part. Sure, give someone 40 years and a healthy income, and they might recover from $5 million back up to $32 million. But they’ll never get as high as they would have gotten had they not lost so much. And more importantly, how long will it be before they get back to where they were? What life dreams, goals, and plans will they have to delay or give up on entirely because they didn’t have the money when they needed it?
Suppose that couple was preparing to invest $10 million in a new business or to start a foundation. Now, they couldn’t do it. 20 years later, maybe they have the money back. But by then it’s too late. They’re retired, focused on other things. The moment passed.
Wonderland is where you are if you believe you will always just ‘make it back’ after a market collapse or recession. What if the market collapses just after Amazon gets forced to break up, and at the same time, the capital gains tax gets raised to the same level as the income tax? What if you lose 60% of your investment portfolio in that collapse?
Think you’ll make that back?
Ted Turner famously lost nearly 90% of his wealth when AOL-Time Warner collapsed in the early 2000s. Think he ever made that back?
If you made your wealth all back in a few months after the covid recession, we have news for you:
You got lucky.
Don’t count on it happening so easily the next time. Come back up the rabbit hole, and look at the world as it really is, not the fantasy world it sometimes appears to be.
Best investing advice: Expect hardship, downturns, and market volatility
Worst investing advice: Assume you’ll just make back any losses suffered in a recession
3. Use Your Wisdom Teeth, not Your Funny Bone
Now is the time to allow your wiser self to take over your investment planning, and put away greedy ideas about earning 20% no matter what, or making back whatever investment losses you might endure.
What does your wiser self have to say?
Wisdom says to balance risk against return while focusing instead on the things in your life that matter most to you.
Many high and ultra high net worth investors have enough money to ‘last’ the rest of their lives – as long as they manage it well and make smart decisions. This should be your primary focus. Earning 30% one year does little good if you lose 25% of it the next.
Don’t misunderstand. We’re not saying investment performance doesn’t matter. It matters a lot. What we’re saying is you need to redefine what performance really means.
Performance means lifelong financial security – no matter what happens politically, economically, or socially. It means securely achieving all your financial and lifestyle goals and desires. Being over-invested in stocks is a recipe for stress and heartbreak.
Instead, you want to use financial planning from high net worth investment experts that achieves ALL of the following:
- Customized asset allocation
- Portfolio stress-testing using 100 years of market data
- Incorporate your personal life dreams, desires, and goals into your financial plan
- Derive the perfect combination of lowest risk and best return
- Deliver all this with highest degree of confidence possible
Best investing advice: Build an asset allocation designed around lifelong security
Worst investing advice: Go for the biggest possible growth and forget about risk
Don’t Wait – Change Your Portfolio Plan Now
With uncertainty building across stocks, bonds, real estate, and inflation, buffeted by political headwinds, these are not the times to be risking your future security on unproven and unhinged investment strategies.
Rather, these are the times for making wise choices based on professional financial planning and wealth management principles. Few wealthy families have the time or the experience to competently manage their wealth to the degree needed if they want to enjoy worry-free financial serenity.
If you qualify, the best decision you can make is to talk to a wealth manager who works exclusively with high net worth investors who have $5 million to $500 million in liquid assets.
Pillar offers free consultations in which we create fully customized financial plans before you commit to anything. Click below to see how we would ensure you the financial serenity you want, regardless of what’s happening in the world.
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