Wealth Management For Affluent Investors: How To Invest Your Assets In Volatile Markets

Who are the high net worth(HNW) investors? They could be a family member, a friend, your next-door neighbor, or a business associate. That’s because a high-net-worth investor is anyone with $1,000,000 or more of liquid assets that are available for investment. This number does not include illiquid assets that could include equity in your home, a family business, or a real estate investment. By definition, these are illiquid assets because they can take a long time to sell.

Our definition of liquid assets is described as investments that can be converted into cash in 30 days or less (stocks, bonds, funds). These are the assets that are frequently managed by professionals for high-net-worth, very-high-net-worth, and ultra-high-net-worth investors.

There are a few gray areas when it comes to available assets for investment. For example, investments in 401ks are liquid because they are easy to sell. However, the proceeds have to stay in the plan until you change jobs or retire. So, depending on your age and circumstances, you may not have easy access to the assets without paying some pretty stiff penalties. So, we would include these assets in the illiquid or less liquid categories.

Another example of an illiquid asset can be stock options that restrict the sale of the security while you are still employed by the issuing company. These assets may have substantial value, but they are not the same as savings that are sitting in personal accounts or self-directed IRAs. 

The widely accepted definition of a Very-High-Net-Worth investor is an individual or family with at least $5 million of liquid assets. An Ultra-High-Net-Worth investor is an individual or family that has at least $30 million of liquid assets. 

Ask yourself the following questions about your net worth:   

• Do you know what your net worth happens to be?
• What is your liquid net worth?
• What is your illiquid net worth?
• How will this impact your investment strategy?

Many of the best wealth management firms in the U.S. have minimum asset requirements of one, five, and ten million dollars. Most investors do not have access to these managers because they cannot meet their minimum asset requirements.

Some wealth managers have flexible minimums if they know additional assets will be available in the not-too-distant future. For example, you are going to retire and roll assets from a 401k into a self-directed IRA. Or, you are going to sell your family-owned business, invest the proceeds, and retire. Or, how about selling that apartment building you have owned for years?

There is another way high-net-worth, very-high-net-worth, and ultra-high-net-worth investors are different. Investors with smaller sums of assets tend to be invested in stocks, bonds, and cash equivalents. The money manager could be a mutual fund or an Exchange Traded Fund.

On the other hand, high-net-worth, very-high-net-worth, and ultra-high-net-worth investors may be invested with multiple Separate Account Managers and hedge funds. They may also be invested in more asset classes: Real estate, commodities, precious metals, and other alternative investments. 

We have already established that high-net-worth, very-high-net-worth, and ultra-high-net-worth investors have more to lose in down markets. Consequently, they may choose to be more cautious when they invest their assets in various markets.

Another way of saying this is they have more to lose than they have to gain so they can afford to be more cautious than other investors. More assets will not change their lifestyles of financial security. A lesser amount of assets could be a problem. Their number one priority is the preservation of capital versus accumulating more assets.

This additional risk may not make sense to VHNW and UHNW investors because they already have larger sums of money. 

The one caveat for investors with larger asset amounts is to be very aware of their “real rate of return”, that is their gross return minus inflation because that erodes the purchasing power of their money. This is a longer-term risk that can impact their standards of living when they are more dependent on their assets to fund their lifestyles and financial security later in life.

Think of your investment horizon as your recovery period. If the stock market goes into a general decline, and you don’t need the invested assets for five or more years, then you have plenty of time to recover any unrealized losses you may have incurred. In other words, you can afford to stay invested and wait for markets to recover. 

On the hand, if you have a short-term investment horizon (less than 5 years) then you may not have the risk tolerance to stay fully invested during the market decline. You have to be more conservative to protect the market value of your investments. 

How does wealth impact your investment strategy? If you are extremely wealthy you want to earn a return that protects the purchasing power of your assets and offsets any expenses you may be incurring. In other words, you want positive “real” and “net” rates of returns. Offsetting any other types of erosion (distributions, taxes) also protects the future value of your assets and your purchasing power.

It is a widely accepted investment axiom that diversification is a good way to minimize your risk of large losses. That is because a bad investment only impacts a small portion of your assets. 

Even better, in an ideal world, when one investment is dropping in value another investment is rising in value so they are offsetting. For example, a technology stock loses 20% of its value while an energy stock increases by 20%.

There are several levels of diversification starting with stocks and bonds. You don’t own a portfolio with five stocks. You own a portfolio with 30 stocks, not to mention bonds, cash equivalents, and some alternative investments. 

Don’t forget you also may own domestic stocks (headquartered inside the U.S.) and foreign stocks (headquartered outside the U.S.)

You can also diversify by market capitalizations (small, mid, large), industries (energy, technology), and growth or value stocks.

Alternative investments can be a good way to add diversity and stability to a portfolio, but they may not be the best option for everyone. Higher net-worth investors should carefully weigh the pros and cons of alternative investments before deciding if they are right for them. 

The most popular alternative investments are income producing real estate and precious metals.

Ideally, the alternative investments are not impacted by the same economic conditions as your other assets. For example, inflation causes stocks to decline in value, due to rising costs and declining profits. However, income-producing real estate is not impacted the same because rental income is indexed to inflation.

 Treasury Inflation-Protected Securities (TIPS) are another form of protection. Their principal amount is also indexed to inflation and protected by the full faith and credit of the U.S. government.

ViaWealth is a financial advisory firm that was designed from the firm’s inception to provide a full range of financial advice and services that are required by affluent investors: Planning, investment, insurance, tax, estate, and charitable endowment planning services.

ViaWealth provides institutional quality services that are required by high-net-worth, very-high-net-worth, and ultra-high-net-worth investors. For example, our services emphasize comprehensive estate and legacy planning for future generations. Then we provide sophisticated, broadly diversified investment portfolios for our client's assets.

ViaWealth provides conservative investment advice and services that put the preservation of capital first. Our recommendations include investing in a broad array of asset classes to maximize diversification and minimize potential risk. 

ViaWealth provides the global wealth management services that affluent investors expect when they invest inside and outside the U.S. 

This holistic approach appeals to investors who have more complex financial situations. ViaWealth can deliver all of the services they need from one coordinated source. There is no risk of duplicate or conflicting advice when ViaWealth is your financial advisor.