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Black Swan Events Don’t Have to Imperil Your Portfolio

Over the past thirty years, we’ve seen more than a few recessions and market crashes. Pillar’s experts have managed high net worth and ultra-high net worth portfolios for individuals or families with $5 million to $500 million through the ups and downs related to a variety of major events.

Our innovative process and use of historical data help us create customized plans for our clients that optimize their performance through the highs and lows related to a major event, including what are known as black swan events, such as the first few months of the Covid-19 pandemic.

How do we do it? Are you at risk from the next black swan event? What can you do to protect your portfolio? Read on to find the path toward financial security that persists even in the worst market conditions. You can also claim your free copy of our hardcover book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates.

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7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning

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.


black swan investment management

What Is a Black Swan Event?

The term ‘black swan event’ dates as far back as ancient Rome, even before real black swans had ever been observed. Financial advisors have used the term ‘black swan event’ since 2001 to describe any unpredictable event that produces major negative effects on the economy. The attack on the twin towers is a clear example of a black swan. Other examples include Black Monday in 1987, the dot-com recession (though that one was predictable, to a degree), the Fukushima reactor failure in 2015, and the first few months of the Covid-19 pandemic.

Nassim Nicholas Taleb, a finance professor, writer, and former Wall Street trader, popularized the black swan term. Prior to the 2008 financial crisis events, Taleb wrote a book in 2007 about the concept of a black swan event. Since black swan events are difficult to predict due to their rarity but have catastrophic implications, Taleb argues that people should always believe a black swan event, whatever it may be, is a possibility and prepare accordingly.

Then, Taleb used the financial crisis of 2008 and the concept of black swan events to argue that allowing a dysfunctional system to collapse simply strengthens it against potential black swan events. He also argued that, in the face of unusual, unexpected incidents, a device propped up and shielded from risk becomes even more sensitive to catastrophic failure.

A black swan event is an occurrence that is so unusual that even the chance of it happening is unclear. A black swan event has a catastrophic effect when it does happen, and it is explained in retrospect as if it were actually predicted.

Who’s Most at Risk from Black Swan Events?

As high net worth people, no matter how much fun we have, so much remains outside our control. Some of the greatest threats to your portfolio comes from unpredictable events known as black swan events, most of which you cannot prevent or predict. The good news is, you can protect your portfolio and long-term financial security from the risk of a black swan. You can withstand the effects of big-scale possibility.

To understand how, you must first distinguish the different types of black swan events that can happen and how they can affect world economies, eventually trickling down to cities like Walnut Creek.

Black swan investment management will be explained here and how they can impact your portfolio, read on or schedule a chat with one of our financial experts.

Black swan Investment Management Preparation for Investors

It’s probably not a good idea for investors to construct a portfolio plan entirely around doomsday scenarios for an upcoming black swan. According to Desai, one of the possibilities is to invest a portion of the portfolio in U.S. Treasuries. Other choices include purchasing index put options (with an appropriately permitted account) or allocating a greater portion of a portfolio to so-called “safe havens” like money or gold.

Another way to look at it: There will still be risks and possible black swan events, but there will also be possibilities. Desai clarified that black swans “often generate chances to take a speculative approach, as many investors flee the market.”

How Black Swan Events Weaken Your Financial Security

Black swan events certainly do impact your portfolio, but they only comprise part of the picture. As one article points out, equity prices tend to return to normal pretty quickly after a black swan for most unpredictable short-term events.

The initial reaction is usually based on little more than irrational panic, not real market forces, so the correction back to normal is swift. You saw this even with Covid-19. The market bounced back within just a few months. But the other part of the picture comes from the predictable and known event that will assail your portfolio. Those don’t have any less impact than black swans.

Predictable Events – Beyond the Black Swan

For instance, high inflation will return again someday. When it does, it will damage the economy and weaken your portfolio. Not knowing when it will return has nothing to do with the reality of its effects. Also, as technology continues to advance, certain job sectors will be eliminated. If the pace of innovation outpaces society’s ability to adapt, this will produce short-term economic problems.

These are known and predictable trends and events. Combine these with black swans, and you can envision dozens of scenarios that may imperil your investment performance and retirement plans. Just one of these predictable events can cause great economic damage.

Who Is Most at Risk from Black Swans and Economic Forces?

The higher-risk investments in your portfolio face the greatest chances of incurring huge losses when predictable events and black swans lead to economic stagnation or recession. Having a trusted advisor working on your behalf before these events arrive can save you from disastrous decisions and missed opportunities. That doesn’t mean you should shed all your higher-risk investments. But consider the investment strategy of your greatest concentration of wealth. You should pay the most attention to those areas.

Other than Microsoft, Amazon, Google, Apple, and perhaps a handful of others, not many tech companies have even existed for 20 years, let alone done well. And the tech collapse in 2000 was the primary cause of that recession, hence its moniker today as the ‘dotcom bust.’ You are at risk from the effects of global and black swan events if your wealth is highly concentrated in stock options in your company. You’re also at risk if most of your portfolio is invested in just one market sector, such as technology or one commodity.

And, you’re still at risk if your entire portfolio is in equities, even if they’re well-diversified. When the next bear market hits, you stand to lose an average of 40% of your value (based on the 13 previous bear markets since 1929). Over-investing in any one area puts you at greater risk. Are you over-invested? Find out by talking to a wealth manager.

The One-Word Solution to Protect Your Portfolio

The simple solution to all of the above is to diversify your portfolio. However, that ‘simple’ solution quickly entangles with its own complexity. As Kiplinger puts it, “Diversification in contemplation of macro events is a little more involved than simply spreading your fund out among a lot of equities and bonds.

The surest measure of wealth protection comes from asset allocation, meaning expanding your wealth into bonds, cash, and perhaps other assets like real estate and even collectibles. But as the Kiplinger quote makes clear, how you achieve the most ideal and optimized allocation that balances risk against long-term growth isn’t simple at all.

In fact, this is the question that few can answer. This is the reason to get a financial advisor. And if you’re a high net worth or ultra-high net worth investor, you don’t just want a financial advisor. You want a wealth manager – a specialized expert who works exclusively with investors of your financial caliber. That means devoting time and energy to choose the right financial advisor to handle your portfolio. Are you ready to get started? Schedule an appointment with Hutch Ashoo, Founder and CEO of Pillar Wealth Management, to learn how we can help you improve the performance of your portfolio.

Modern Portfolio Theory by Harry Markowitz

An economist named Harry Markowitz outlined his dissertation on “Portfolio Theory” in 1952, a paper that included ideas that revolutionized portfolio management and awarded him the Nobel Prize in Economics about four decades later.

Harry Markowitz showed that a diversified portfolio becomes less volatile by focusing on the number of its components, rather than concentrating on the risk of each individual asset. Although each investment can be quite volatile on its own, the overall volatility of the portfolio could be quite low.

Portfolio Protection Measures You Don’t Have Time For

Much advice gets proliferated about how to protect your portfolio against unforeseen and uncontrollable events and black swan events, such as this article on portfolio protection. The prevailing intent is to prevent large losses and protect your gains. Here’s the problem with most of this advice: It’s written at a level that assumes a high degree of financial and investment expertise.

They will recommend strategies such as ‘put options,’ stop losses and dividends. And to be clear, these strategies can be helpful – if you know how and when to use them. Most high net worth investors don’t have the time or the desire for this sort of thing. You didn’t become a high net worth individual by learning how to do everything by yourself.

You got there in part because you know how to delegate tasks to experts in other fields, which frees you up to focus on maximizing your own strengths. Protecting your high net worth investment against black swan events is no different.

You also have to know about tail risk as a risk for your investment portfolio. According to the Investopedia website, tail risk is a kind of portfolio risk that occurs when the probability of investment moves more than three standard deviations from the mean of a normal distribution. Tail risk events have a low probability of happening and can occur at both ends of a distribution curve..

How a Wealth Manager Can Protect Your Portfolio against World Events

An experienced ultra-high net worth wealth manager understands how to achieve the optimized balance of counterweighting asset classes, which offers your best protection against black swan events and other external economic forces. That manager will balance your risk while maximizing performance and protect your long-term financial security, even in the face of unknown and uncontrollable events.

At Pillar Wealth Management, our investment planning process was created to achieve this. Our high net worth clients can rest securely, even when seemingly catastrophic black swan events threaten the global or national economy. How do we do this? Let’s start with a question:

What if I could remain financially secure no matter what’s going on in the world?

Our approach achieves far more security for you than that. Using Pillar’s system, you will be able to forecast your long-term portfolio performance based on historical market data that includes black swan events and everything else, dating back to the 1920s.

– Determine the security of your portfolio, even 30 or 40 years out

– Make immediate adjustments to your plan – if necessary – when a predictable global economic or black swan event takes place

– Adjust your short and long term goals in response to major events

– Maintain financial security at all times

 Eliminate worry about the future – even when global markets suffer from uncontrollable events

– Our system is customized to your exact financial and life situation.

Customized means everything about you factors into your plan. If world forces and black swan events threaten your portfolio and affect your long-term plans, you can contact us and immediately find out how this event has affected your portfolio, even 30 or 40 years out. You will be able to see if your portfolio remains secure or if you need to make any adjustments to protect it from the effects of whatever is going on in the world. If you do need to make adjustments, you’ll be able to do so in five areas:

1.How much you spend

2.How much you save

3.How much you leave to your heirs

4.The timing of planned major expenses

5.Risk tolerance

These are like five levers. You pull one; your portfolio projections for the next several decades get re-calculated. Pull another one, they re-calculate again. If black swan events threaten your business, your real estate, or your investments, we can look at historical market data and how it has performed through similar events applied to your specific portfolio.

Once adjustments have been made and your security is restored, you can stop worrying about the news. You can go focus on helping your co-workers, employees, family, and friends navigate their own challenges resulting from whatever has gone wrong. You can cease worrying about your money and focus on helping other people. That’s what our portfolio planning system achieves in the best interest of all our high net worth clients. Contact Pillar Wealth Management to schedule an appointment and get the conversation started.

Other Events that Upend Your Life

A black swan event upending your portfolio is just one of many ways your life and finances can encounter peril. For high net worth individuals, a divorce can wreak havoc on what used to be a secure investment outlook. See 7 tips to protect your portfolio from the effects of divorce. On the flip side, even something positive like a large inheritance can cause unexpected challenges in your financial planning. Here’s your 7-step high net worth inheritance planning guide

If you’re concerned about being ill-prepared for the next black swan event or costly economic situation, see how your portfolio will hold up by getting a Wealth Management Analysis report. Schedule a free and customized Wealth Management Analysis meeting with one of our experienced financial advisors.

The writer Nassim Nicholas Taleb popularized the concept of the black swan event in his book, The Black Swan: The Impact Of The Highly Improbable (Penguin, 2008). The essence of his work about black swan investment management is that the world is severely affected by rare and difficult events to predict. The implications for markets and investments are compelling and need to be taken seriously.

History shows that infectious diseases, epidemics, and pandemics, have been the number 1 mass killers of people, outperforming even natural disasters and wars (indeed, more people died from the 1918 flu outbreak than died in the First World War).


To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.

We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.

You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.

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