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.
Table of Contents
- How Do You Define ‘Performance’?
- How to Achieve Consistently Maximized Performance
- Secret to Retirement Performance: Avoid These Investment Options
- Minimizing Risk and Maximizing Retirement Investment Performance
- How to Optimize Your Investment Performance in Retirement
- A Customized And Maximized Portfolio Management Process
As a high net worth or ultra-high net worth individual living in or around the San Francisco Bay Area, you just want to keep living and enjoying life throughout your retirement – however you choose to live it – and want it to be well-funded with consistently strong performance. Is that so hard?
The problem is, what you’re asking is more complicated than it seems. This article will explain why, and then show, in brief, how you can begin to maximize retirement investment performance.
How Do You Define ‘Performance’?
There is no universally accepted understanding of what ‘best’ performance means. Is it just the highest possible growth? Well, over what time period? Sure, you can earn the highest possible growth one year, but no one, anywhere, ever, earns the highest growth year after year. That should be obvious.
So then, does ‘best’ performance mean consistently high performance year after year, even if it’s not the highest? Well, how much growth does it take to be counted as ‘consistently’ high? Do you need 8% per year? 10%? 14%? 5.75? More than your friend is making? High net worth people (and some of their financial advisors) put out numbers like these and then base too many of their expectations on achieving them.
You probably have enough experience to know that no one earns the same growth every year. It fluctuates. How much fluctuation are you willing to withstand? 2% per year? 6%? In other words, are you okay earning a range of growth that never varies more than 2%, as in, it’s always between 8-10%? The next question then becomes, are your expectations realistic?
Some clients come to wealth managers like Pillar Wealth Management and say they want 10% growth every single year. Over 20 and 30 year periods, pretty much no one earns that. And again, where does that number come from? Is it because ‘10’ is a nice round number? Because we have a base 10 number system? Because you have 10 fingers and 10 toes? Why not 9%? Why not 11%? Why not 9.239%? Again, how do you define ‘strong’ performance.
See how nebulous this whole discussion can quickly become?
How to Achieve Consistently Maximized Performance
Pillar Wealth Management doesn’t use the term ‘high’ performance for the reasons you’ve just read. We say ‘optimized’ or ‘maximized’ performance. The differences are critical for those who care only about performance and not about retirement goals.
For retirement planning, most people want stability more than anything else. They want to secure their financial serenity for the rest of their lives. They want to see the numbers going up every year – even in a down economy. Well guess what: You won’t see that if you’re shooting for the ‘highest’ possible performance. Here’s why:
The only way to achieve consistently strong performance with reduced volatility is to properly balance your risk with your asset allocation. The lower the risk, the lower the overall performance but the greater the stability. The higher the risk, the greater the potential for big wins but also big losses.
Go too low on risk, and you might earn 1.4%. Go too high on risk, and you’ll likely lose half your money when the market crashes.
Do you want super high performance in one or two great years, surrounded by mediocre gains or even losses the other years? That actually is the choice if you want a high-risk portfolio.
The Smart Approach:
But if you want optimized and maximized performance, you want the highest possible performance without sacrificing your future security from undue risk.
How do you achieve this?
The first step is to avoid high risk and costly investments.
Secret to Retirement Performance: Avoid These Investment Options
Here are a few things to generally avoid if you want optimized investment performance:
- Angel investing and venture capital (this may be thrilling but is very economy dependent and utterly illiquid)
- Stocks in individual companies
- High risk mutual funds and ETFs
- High fee investments
- Any financial advisor or wealth manager who pushes you toward a risky asset allocation
Each of these investment vehicles impedes your long term growth in some way.
Angel investing and venture capital simply doesn’t provide any safeguards for long term growth. It’s high-risk, low-probability investing. If you want to have fun with that, do it with extra money you can afford to lose without sacrificing your retirement goals.
Just like gambling money. A huge draw back to this style of investing is the lock-ups which are usually 7 years. Any individual company stock can rise and fall for all kinds of reasons outside your control, from weather to economic meltdowns to trade policy to bad business decisions by the company to Wall Street computer algorithms having a bad day.
Sure, you’ll have a few big years, more if you’re lucky. But ALL individual stocks, no matter what type of stocks they are, carry a lot of volatility. Yes, they all are. High risk mutual funds and ETFs subject you to similar and potentially even higher risks, than those individual stocks.
High fee investments eat into your growth, negating gains you may be earning otherwise. Annuities lock up your money and impose super high fees that you’ll never overcome with the growth you would have earned had you simply created an optimized investment portfolio with the asset allocation that is best for you.
Minimizing Risk and Maximizing Retirement Investment Performance
Too much risk can actually lead to debilitating losses at the worst possible time, forcing you to pick and choose from life choices you were counting on having the luxury to enjoy. So even if you say you don’t care about retirement goals, you will care if you have to restrict your lifestyle because your investments didn’t perform as expected – which is much more likely with a high risk asset allocation.
We have seen so many clients come to us from other financial advisors who have told them they should be invested 70% in stocks, 30% in bonds. Sometimes as high as 100% in stocks. And these clients are often already retired, or getting close to it.
Such a high-risk approach can lead to disaster if the market tanks at a vulnerable moment for you, such as unexpected medical events. The astonishing truth we have had the pleasure of showing so many of these people is that they can actually spend more money than they had planned, in retirement, and yet be more financially secure while earning better performance.
They just needed to jump off the bandwagon of foolish financial advice. If you want to take a deeper dive into how we achieve outstanding performance and read some real stories of high net worth clients, get our free eBook, Outstanding Portfolio Performance – The Shifts to Financial Security and Serenity for Successful Multi-Millionaires. I Want Outstanding Performance
How to Optimize Your Investment Performance in Retirement
Balancing risk is just one part of achieving the most optimized performance. To get all the way there, you must make several shifts in how you think about investment planning. Again, the free eBook you can get by clicking the button above goes into more depth about this.
One of those shifts is to realize that over 90% of money managers and financial advisors fail to outperform the market over 10-year periods and longer. Over 20 years, the numbers get even worse.
Therefore, investment performance doesn’t mean earning the highest possible growth. One way is to minimize your costs of investing. Just a few costs that rip away any semblance of impressive performance include:
- Short-term capital gains taxes
You owe these when you own equities for less than a full year. In other words – trading. But even if you’re not the one trading, you still pay these higher taxes if your advisor or money manager is doing it. Long term capital gains get taxed at 20%. Short term ones currently stand at 37%. That’s a BIG difference.
As an ultra-high net worth investor working with millions in liquid assets, you’ll be losing hundreds of thousands, if not millions depending on your net worth, to this tax if you don’t watch out to avoid it.
- Hidden investment fees
Some money managers and financial advisors charge extra fees for all sorts of things in addition to their primary investment management fee. Let’s assume that’s 1%, fairly standard in the industry.
If you’re also paying for things like bond spreads, margin interest, and unnecessary high fees for active management that doesn’t produce higher performance, your hidden fees and costs will erode significant growth advantages you might appear to have earned on your statements.
- Tax loss cultivation
Properly managing gains and losses can save you tens, or hundreds of thousands per year. This is a task that requires a proactive wealth manager who pays attention to these sorts of details. If you add up these and other costs, you can easily end up paying an additional 2% or more per year than you should be.
Do you see why minimizing your costs is part of optimized and maximized investment performance? If one investor earns 10% and another earns 8.2%, but the first one pays 3% in costs and the second pays 1.2%, then in truth – both investors are earning 7%.
But, what if both earned 10%? Then the second investor would net 2.8% more than the first because of all those unnecessary costs and fees.
What’s 2.8% of $10 million? $280,000. Do you want to throw away $280,000 for no reason whatsoever? We’re guessing you didn’t acquire your wealth that way.
A Customized And Maximized Portfolio Management Process
What you have seen so far is the window dressing. The ‘easy’ part. Don’t misunderstand – it’s not easy – but it is something every financial advisor could do if they wanted to optimize their high net worth clients’ performance to meet their retirement goals.
But there is another whole level to this we haven’t even broached yet. Pillar Wealth Management has perfected a process that stress test how your portfolio will perform, far into the future, using historical market data going back almost 100 years, before the Great Depression.
This data is there for all to see. We have seen how the market performed through wars, inflation, political upheaval, social upheaval, and natural disasters. At Pillar Wealth Management, we use that data to simulate how your portfolio will likely perform in 1000 different scenarios.
If your portfolio exceeds your performance and retirement goals in 750 to 900 of those scenarios, you can feel confident in your retirement performance. We call that the Comfort Zone. There’s a lot more to this part of optimizing performance, as you might have guessed.
If you’d like to hear more and see how your portfolio will hold up in these 1000 scenarios, schedule a free Wealth Management Analysis meeting. The first step before that meeting is a simple 2-3-minute phone call so we can make an introduction and see if we might be a good fit.
For that call, you don’t need to know any of your numbers or have anything in front of you. It couldn’t be easier, and it may be the decision that changes everything, and finally gets you the optimized performance you’ve been seeking but haven’t yet found.