As a High Net Worth (HNW) individual with between 1 million and 500 million dollars of liquid investable assets, the time is past when you had to make risky investments for the returns. It is wise to begin stabilizing your portfolio once you reach a high enough liquid net worth to just live off the profits and income that your portfolio is generating.
There’s a possibility that your portfolio would experience some degree of fluctuation that generates a loss. One thing we cannot stress enough is that market fluctuations are an inescapable fact of an investment process.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
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Even though you cannot escape the volatility, you can still avoid the stress generated from it. The key words here are: safeguards and contingency plans.
The real worry you have is that the fluctuation will compromise your financial integrity, but it may be possible to safeguard your peace of mind by controlling the risk you accept on your portfolio.
The point we’re making here is by controlling your risk, you don’t need to worry about the fluctuation as much; since by doing so you can ride the fluctuations without losing your nerves.
Ultimately, market volatility is scary because it introduces the possibility of losing out on your lifestyle in the future.
The way to overcome this fear is to understand that you can take safety measures that will maintain your wealth as your investments float around the market.
Market Volatility: The Investor’s Nightmare
The root cause of all volatility is investor behavior. When market volatility hits, it implies an unaccountable number of factors that interact in an unaccountable number of ways to create uncertainty.
You can never know where the momentum will carry you and you don’t have enough market influence to change it. You’re subjected to the pure whims of an unstoppable force that puts your finances at risk.
Fact of the matter is, UHNW or HNW individuals have a greater risk bearing capacity, yet they also work with large volumes of investments compared to other people.
So, although their risk bearing capacity increases as their wealth increases, it also means that they take higher risks.
Many affluent individuals wonder if they will lose out on potential gains if they become more wary of the investments they make. Many affluent investors also compromise on their financial well-being as they try to keep pace with market volatility, and continuously make rapid investment shifts to avoid losses. While they might have a net worth of $5 million, a $200,000 monetary loss is still a worrisome position to be in.
At this moment, it may be better to take a step back and look at the bigger picture. Think about why you began to pursue your financial goals. You did this so that you could live a better life, be comfortable to the end of your days, and leave something behind for your children. The point of the money was to help you get all the things you couldn’t before.
If you don’t feel comfortable with the fluctuations your portfolio experiences, it’s completely rational to move into other stable markets. Versatility in your portfolio and flexibility in investment decision are the defining characteristics of a successful investor. Remember, money for money’s sake is not worth much. Your wealth is to enable you to live the life of your dreams; it’s a means to an end. Make sure you reap the full benefits of your hard work and enjoy your life.
Protecting Yourself from Market Volatility
Moving into safer, less volatile markets is perhaps one of the most obvious ways to ensure that you generate returns while also safeguarding your long-term financial interest. There are other possible avenues that you can explore in order to stay safe while working with volatile investments. These can include:
- Timely investment shifts
- Portfolio diversification
- Effective cash flow management
- Work with financial experts
- Set out Long Term Financial Plans
- Persevere when markets become volatile
Consider Moving Around Your Investments
We’ve said this often before, but we feel that it cannot be said often enough. Moving out of risky investments is the best way to relieve the pressure from a fear of making huge losses. 2018 in specific was a year where stock markets saw the most volatility since the financial crisis.
To navigate through these choppy waters requires you or your financial team to consistently be on guard. You will have to move around your investments to make sure you survive. Even then there is no guarantee that you will continue making gains in such a time.
When financial conditions of this sort set in your only saving grace would be to not be over-exposed to risk.
Your wealth manager can help reduce you ride out the volatility by creating asset allocation schemes that would reduce your risk, and maintain appropriate levels of fixed income generation.
To make sure that you keep generating income despite the volatility you experience, constant reconsideration and revaluation is necessary. Your investment managers can carry out this exercise for you by identifying profitable investment opportunities despite market fluctuation.
We are particularly adamant of keeping a diverse portfolio of investments under your belt.
Financial analysts describe something called the efficient frontier. A portfolio lies on this frontier when it generates the highest possible returns with a certain risk level.
Investments managers and financial planners can help identify what your efficient portfolio is. As they begin to diversify your investments, they will spread the risk and develop strategies that will keep you profitable despite the volatility in the market. At the very least, you can create portfolios that can cushion out losses you suffer through market volatility.
Managing Cash Flows
Financial management is a great way to overcome the uncertainty from market volatility. Your investment decisions are always evaluated within the context of your financial goals. Although financial management isn’t a way of increasing your wealth, it is a way of fortifying your overall income. Managing a balance between your liquid assets and your investments introduces a sense of security in terms of your overall financial integrity.
Wealth managers can offer plenty of advice on how you can manage your spending decisions that won’t compromise your financial well-being in the event that market volatility hits. By creating multiple income streams and strategies that would minimize the effects of your expenses on your overall wealth, wealth managers can continue improving your financial prospects which mitigate the risks of market volatility.
Consult With Financial Experts
Having a team of experienced and trustworthy financial experts is perhaps the best investment you could ever make. Personal involvement in your financial and investment decisions might compromise your foresight to make the best possible decisions right now. A financial planning team is an essential component of making well-informed wealth decisions.
Wealth managers can help devise detailed financial plans which you can then work toward. Combining the skill sets that these individuals can offer will help you direct your investment decisions towards the best possible outcomes. With the analysis, advice and direction they can offer, it is less likely that you will make a misstep with your finances, or compromise on your existing wealth.
Creating Long Term Financial Plans
A good financial plan sets out the targets you must meet in order to achieve your financial goals. Such a plan will incorporate potential setbacks and will identify any contingency measures to help you overcome those setbacks. Fighting against uncertainty requires that you prepare yourself against anything that can be thrown at you.
Since investment markets are linked with global political and economic dynamics, there is very little control that you can exert on these events.
The best thing you can do is be prepared and set yourself up to overcome any setbacks that you might potentially face in the future. If you already have a financial team working for you, utilize their skills to identify any pitfalls that you might face. Working with these experts can help prepare you to overcome any uncertainty in the markets you will face through the creation of a well thought out financial plan.
Making The Tough Calls
On the off-chance that your investments are not working out the way you want them to, you might have to grit your teeth and just give up on some of them. Although it is unlikely that it will come to it, sometimes letting go is the best option. Your financial team can create exit strategies that minimize your losses and can have you ready to take on investments to recover from your losses.
Perseverance In the Face of Volatility
Sometimes the only thing you can do is bear with market volatility and keep calm when faced with unpredictable conditions. Financial experts will unanimously agree that there are no guarantees in investment management. There are measures you can adopt to keep yourself protected, but all seasoned investors need to live with the possibility of suffering losses at some point.
The best anyone can really do is to make the best possible decisions with their money and hope that things work out. The best advice anyone can give is to stick to the plans that you have set and trust the words of experts who have spent their lives perfecting their knowledge of finance.
Sticking To Your Roots
When you’re faced with market volatility and feel that a sense of fear might be compromising your decision making capability, always remember to place the money in the context of the larger picture. Nothing takes precedence over you and your family’s well-being. Your money is a way to make sure all of your loved ones are taken care of and living their best lives.
In the pursuit of happiness and self-actualization, there is no room for error. When you begin to worry about how your investments are doing, evaluate your decisions in light of how the money will serve you. Listen to your advisors, stay true to your plans and there is nothing that will stand in way of your life and financial success.
Hutch Ashoo and Chris Snyder are co-founders of Pillar Wealth Management. We are a fee-only expert wealth management firm for High Net Worth and Ultra High Net Worth Individuals. With years of experience in financial planning and investment management, we can help guide you toward continued financial security.
We take a very active role in helping High Net Worth clients maintain and enjoy their wealth.
Call us today for a complimentary conversation with our expert advisors.