Portfolio Management for High-Net-Worth Individuals

Portfolio management is the careful selection, prioritization, and control of every aspect of personal finance that goes towards building an investment portfolio. Every investment comes with some degree of risk, which is why effective portfolio management becomes an important part of financial planning, especially for high-net-worth individuals who have much at stake in the form of large investments.

high-net-worth individuals require different financial planning strategies to manage their portfolios. It takes more hours and crucial strategizing to encompass all their assets and create a comprehensive plan that will establish passive revenue streams for them and continue to increase their wealth.

Are you a high-net-worth individual? Read on to know how you can improve your investment portfolio. 

Who is a high-net-worth individual?

Although there is no textbook definition of who a high-net-worth individual is, an individual whose net worth crosses a 7 figure mark is usually classified as a high-net-worth individual.

Generally, a person with over $1 million in liquid assets is called a high-net-worth individual. A liquid asset is money held in one’s bank accounts and brokerage accounts that is easily accessible for an immediate expense. It does not include residence, goods, or collectibles that require liquidation to be eligible to be used towards expenses. 

On average, high-net-worth individuals or families hold liquid assets in the range of $1 million and $5 million. Very high-net-worth individuals hold assets in the range of $5 million and $30 million, while ultra-high-net-worth individuals hold assets over $30 million. 

A person can calculate their net worth by subtracting their total liabilities from total assets. 

Why do high-net-worth individuals need a financial advisor?

Not hiring a financial advisor is a mistake that millions of taxpayers make, irrespective of their net worth. Not engaging a qualified financial manager can be even more impactful for those with a high-net-worth. Portfolio managers and advisors help you develop a fool-proof portfolio and stave off avoidable errors in financial planning. 

It is quite likely that the financial goals of an HNWI might be more far-fetched than an average investor’s,  involving a higher level of risk. This makes the need for a qualified financial fiduciary even more important. Portfolios of individuals with a high-net-worth require more attention. The one-size-fits-all approach doesn’t work here. HNWIs require customized plans and critical advice when making financial decisions. 

What does portfolio management include?

1. Asset consolidation

Rather than diversifying their investment portfolio, many high-net-worth individuals create multiple investment accounts with different financial institutions. They often create the same type of investment account with various institutions with the belief that it will help reduce risk. However, the contrary is true.

What the investor is doing is simply splitting where the money is stored. Ideally, the focus should be on how your money is invested – the strategy – and not the location. High-net-worth investors might need help consolidating their assets with the help of a reliable financial planner – a move that can help them keep track of all investments easily. 

Consolidating assets can help investors avoid duplication of investments, streamline taxation, and make the investments easy to review, amend, and manage. Moving all investments into one management firm can also reduce costs.

2. Income generation and financial planning

A portfolio manager can help high-net-worth persons grow current wealth and generate income as well. The ultimate goal is to increase the client’s purchasing power against the growing inflation and the rising cost of living. high-net-worth individuals require investment techniques that will help them bring in additional income in addition to what they are already earning.

That said, one of the goals of a portfolio manager will remain to set up additional revenue streams for high-net-worth individuals while keeping in mind the tax implications of such investments.

3. Tax planning

While high-net-worth individuals need investment strategies that are tax-efficient and save the most amount of money, most wealthy individuals and families skip tax management and planning by themselves. There are generally far too many moving parts to consider that can be harrowing for an individual. Tax consultants can take care of the accounting and taxation, but portfolio managers go a step further to not only look at tax filings but also help make informed decisions concerning investments that are tax-efficient. 

Minor amendments to your tax plan can make a difference to your portfolio and help increase your post-tax take-home. Portfolio managers can also help minimize the overall impact of tax on your portfolio, assess different kinds of taxes and their effect on income, perform tax-loss harvesting, and coordinate the annual tax filing if the need arises. 

Looking for a qualified portfolio manager? Answer a few simple questions on Paladin Registry and the match tool will connect you with 1-3 financial fiduciaries suitable to your financial requirements. Verify their background and interview them at your convenience before engaging with them.

4. Diversification of funds

Investors may believe that investing in popular schemes like mutual funds and stocks is enough to maintain a well-diversified portfolio. However, this diversification may not be sufficient for a high-net-worth individual’s portfolio.

Portfolio management helps such high-net-worth investors make informed choices to figure out what proportion of their wealth should be invested in which asset classes. A portfolio manager can add value to your portfolio by tweaking it with minor but effective changes.

5. Risk management

In addition to their earned income, high-net-worth individuals are also required to safeguard their assets and minimize risks of erosion through expenses, taxes, depreciation of asset value, exposure to market-related risks, etc. They must also prepare for market volatility and the possibility of losses when making high-risk investments.  

Another form of risk that HNWIs must be prepared for is protection or buffer from lawsuits. High-net-worth individuals have traditionally been soft targets for lawsuits. Moreover, there is always a risk of losing income due to unforeseen circumstances like serious illnesses, disabilities, loss of business, failed partnerships, an unconducive business environment, etc. 

Portfolio management is not a shield against all risks. However, what it can do is help assess probable threats to your wealth, find more than one way of dealing with the risks and weave a protective wall around your wealth through smart strategies. Such strategies may help you be prepared to bear the costs and weather bad turn of events without a major impact on your wealth.

6. Passing on your wealth

Most high-net-worth individuals want to preserve their wealth and estates so that they may be passed on to their kin and beneficiaries upon their passing. However, the transition of authority has historically not been as smooth as one would want it to be. Of course, having a will or establishing grantor trusts help to a large extent and avoid conflict in court. However, should the matters be disputed, there is no denying that the experience can be unpleasant. This is why proper estate planning is essential for HNWIs. 

Portfolio management encompasses estate planning and also helps with the tax treatment of estates. Even as property as an asset is already part of an investment plan for HNWIs, portfolio managers may also aid with creating trusts and wills for the seamless passing of assets to the beneficiaries. 

7. Drafting a contingency plan

The Covid-19 situation has proved that life is unpredictable. Serious illnesses, death, or even an economic crisis or a market crash can wreak havoc with the wealth of high-net-worth individuals, as we saw happen during the Covid-led pandemic. Having a contingency plan in place can help stave off high risk to some extent. 

A contingency plan for an HNWI is far more extensive than that of common folk and there may be many factors to consider such as employees to pay, large financial obligations to meet, etc., should things turn sour. This also highlights the importance of a contingency plan for an HNWI. Portfolio managers can help plan and put things in motion at the first opportunity so that HNWIs are prepared to meet additional expenses if needed.


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Portfolio management tips for high-net-worth individuals

1. Choose a qualified portfolio manager

Given the size of your investment portfolio, you as a high-net-worth individual require specialized attention when it comes to planning your finances. Ensure that the financial advisor/portfolio manager you are opting for has sound knowledge of the businesses you involve in and can help you with precisely what you need.

2. Impart financial knowledge to your children

With more money comes the responsibility to ensure that it is preserved in the long run. Share the knowledge that you have gained over the years with your children and even grandchildren and expose them to the value of money when they are still young. All the wealth that you created over the years can be in vain if your future generations don’t understand financial responsibility.

3. Plan for your retirement

Most high-net-worth individuals likely already have an idea of what their retirement is going to look like. However, most HNWIs are also not sure how they can meet their financial obligations, provide for their children and grandchildren, and have the life they imagined, during their retirement. This is why they must plan for it. Portfolio managers may be able to find ways to increase your cash flow for the future to gain steady payouts and minimize your tax burden when you come around to retiring.

4. Create trusts for your children or grandchildren

High-net-worth individuals may consider setting up a trust for their children or grandchildren to take care of their education and other expenses. Trusts also help with smoothening the process of transfer of ownership or rights after the passing of the HNWI. Trusts come with specific tax benefits too. This is an option that portfolio managers will be able to assess the suitability of and recommend to HNWIs at the opportune moment.

5. Plan for business succession

High-net-worth individuals with businesses must plan business succession for when they plan to retire. The chosen beneficiary may also be someone who is not in the family, like a long-time employee or a trusted friend. To make the most unbiased and the right decision, HNWIs might need the help of a financial expert who can carve out business succession strategies that work.

6. Consider charitable donations 

Most high-net-worth individuals consider donating to charitable organizations and are active participants in fund-raiser events. This helps with tax breaks such as offsetting capital gains and can also help one leave behind a philanthropic legacy. However, the charity must be a calculated move for HNWIs. A portfolio manager may be able to assess the requirement for such donations, suggest qualified firms to donate to that are aligned with the business strategies or the values of the HNWI, calculate the tax breaks and help preserve wealth and status in society.

Mistakes to avoid during portfolio management for a high-net-worth individual

For a high-net-worth individual, being careful with money is critical. High-net-worth individuals need to be extra cautious with their portfolios to protect their funds from withering away in storms. Even small mistakes have the potential to lead to surmountable losses. Watch out for these errors if you are an HNWI. 

1. Not taking inflation into account

Even a meager 2% inflation over 25 years can lead to a 50% increase in commodities prices. Individuals with high-net-worth are also prone to the effects of inflation. They must consider inflation when making investment decisions to have a secure retirement and/or pass down their wealth to their heirs. Failing to take inflation into account can erode wealth over time.

2. Investing only in US markets

While it is true that American and European markets are the most secure when it comes to investment, one must not limit themselves. Emerging markets offer opportunities that American markets cannot offer. The difference in the value of the currency – called Forex, foreign exchange – has the potential to deliver good returns while buffering investments against risks in a particular market.

The wealthy may explore such options as investments in the Asian markets after discussing their suitability with their portfolio managers.

3. Not rebalancing your investment portfolio

A wise investor knows when to buy an investment instrument and when to exit it. High-net-worth individuals especially must know how and when to exit to not book a loss. High-net-worth investors must also understand the importance of rebalancing their portfolios. Sometimes, all that an investor needs is liquidating some portion of their portfolio and reallocating assets to get things going. This will aid proportional allocation of assets in a portfolio as per the dynamically changing risk profile of the HNWI – which also needs to be assessed occasionally – to capture the benefits from asset classes while also buffering against loss.

Bottom line

Being a high-net-worth individual comes with its perks and pitfalls. Fortunately, professionals like wealth managers, financial planners, and investment advisors, and financial fiduciaries can help you manage your investment portfolio without running from pillar to post. Portfolio managers are a step in the right direction as their services encompass all of the above-mentioned points and they may become a one-stop solution for all your financial management requirements. Portfolio managers are equipped with the knowledge, education, certifications, and experience to provide comprehensive services to you as HNWIs.

To get in touch with a fiduciary advisor who may provide you with wise financial strategies, use Paladin Registry’s Free Search Tool. Based on your requirements, our platform scans through our registered and qualified advisors to match you with a portfolio manager suited to your needs and goals. Use our additional resources such as the credential verification tool to learn more about the certifications the advisor holds.

For additional questions on the best portfolio management strategies for your financial needs and goals, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been covered in major business publications such as Barron’s, The Wall Street Journal, and The New York Times as a leader in the investment industry with a track record of creating value for his firm’s clients.

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