In our life-long experience as wealth management advisers, we have observed that investors of all kinds – including some ultra-high net worth investors — tend to focus entirely on the return of their individual investments.
However, this approach is fundamentally flawed and puts investors at serious risk.Simply put: investing is war, and as such it must take into considering short-term tactics and long-term implications.
Otherwise, like armies without a strategic battle plan, investors are forced to react to a flurry of events.They cannot make prudent decisions to react to their enemies’ moves, or ensure that they are heading towards their ultimate objectives.
In fact, this might be a good time to lay out your ultimate objectives, especially if you’re unsure of what they are off the top of your head. What are your long-term goals for your wealth? And what short-term tactics do you think you should use to achieve these financial aspirations?
If you’re still unsure, sitting down with a financial advisor and bringing some of your concerns to her attention may help. If you’re a visual learner, putting your objectives in writing before contacting your financial management might also be a gamechanger.
Once you’ve identified your personal objectives, now it’s time to gear up and face your enemies.
And make no mistake: investors do indeed have enemies. Not in the same context as soldiers do, but the fundamental nature of investing is adversarial. In other words, investing is complex and often riddled with conflict, depending on your individual situation. Let’s think of an example.
One investor may bet on a security so they can obtain higher ground and profit. Yet another investor is heading in the opposite direction on the same security to take cover, and avoid being a proverbial sitting duck for an imminent attack.
Which investor will win? Obviously, we cannot declare a winner without knowing the specific facts. However, we can state without hesitation that the investor armed with a comprehensive investment strategy has a substantially greater chance of victory. And that makes sense, doesn’t it? If you were a soldier, you wouldn’t go to war without any weapons or without a game plan, would you?
If you’re an investor and you want to capitalize on your wealth, the best thing for you to do is to suit up and prepare for war (metaphorically, of course). So, the next question is, what battle strategy (financial plan) are you going to choose?
Investment Policy Statement
As we explore further 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”, the battle strategy that investors need in order to know when they should take a hill — and when they should head back down — is captured by the Investment Policy Statement.
The Investment Policy Statement is a unifying statement of financial goals and objectives, and concerns itself with net return after taxes, expenses, fees and inflation. It allows investors to deal with changing financial tools and investments over various time horizons: year to year, decade to decade, and generation to generation.
8 Key Elements
In order to function as a reliable strategic battle plan, the Investment Policy Statement should cover 8 key elements:
- How much risk should be accepted in the portfolio
- The long-term performance target for the portfolio
- Ongoing liquidity and spending needs, cash flow in/out
- Non-repeating cash flow in/out items
- The asset allocation to achieve elements 1 and 2 noted above
- Rebalancing criteria and policies
- Assessing the probability of long-term success
- Identifying how money should be managed
Going One Step Further
We also advise that investors go one step further, by testing the probability of achieving multigenerational portfolio goals in light of different Investment Policy Statement strategies.
Finally, we highly recommend re-testing these probabilities on an ongoing basis. We re-test our clients’ success rates every quarter since as we all know, the only constant in life is change! In addition, when adjustments, we along with our clients, prefer they be minor changes vs fire drills.
If your financial advisor isn’t living up to your standards or isn’t going one step further to get your wealth to the next level, it could be time to consider a top wealth manager. Start by looking for financial advisors in Miami, Florida, or your local area. After all, you’ve got a war to prepare for!