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10 Tips For
$5,000,000+
Portfolios

1. Create a Family Enterprise

A family enterprise approach looks at a family’s lifestyle, goals, values, and priorities to create a strategy that is tailored to them. Your family’s long-term success depends on the vitality of the entire system: the business entity, the family unit, and the individual family members. Family enterprise means using a family’s resources to create wealth and entrepreneurship across multiple generations. This requires a new mindset and a unified family group with a cohesive vision of prosperity and a legacy for future generations.

“The family is both the fundamental unit of society as well as the root of culture”

– Marianne Neifert

Family units are increasingly being affected by today’s complex environmental, economic, and sociocultural issues. Inevitable changes to the family, business and/or ownership systems require proper guidance to maximize impact and mitigate disruption.

2. Asset Allocation, Asset Allocation & Asset Allocation

When most people think of the value financial advisors add they, typically think of stock picking, sector rotating, and timing the market. In reality, the most important decision an investor can make is proper asset allocation.

Studies have shown that more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of diversified portfolio’s return.

High-net-worth investors typically have different objectives when it comes to investing. They need to go beyond basic portfolio diversification strategies to optimize their portfolio and avoid concentrating too much money on any one particular investment. Proper asset allocation gives people confidence in maintaining their lifestyle today while also achieving their long-term financial goals.

3. Invest in Alternative Assets

Alternative assets are often attractive because of the high returns they can generate and the opportunity to diversify an investment portfolio away from traditional investments, reducing overall portfolio risk. Alternative investments have had a massive bump in popularity in the past several years, especially among institutional and high-net-worth investors. However, many financial advisors are still lagging behind in terms of awareness as well as usage in client portfolios.

“After taking into account inflation, traditional portfolios I believe will be challenged to deliver what investors will need to retire”

– Corrado Tiralongo

Whatever the economic climate or period, investors need to ensure that their portfolio is set up for success and effectively balanced across more than just traditional strategies of equities and bonds. The future, as we know, is fraught with unknowns that can quickly derail our well-laid financial plans. If your portfolio comprises solely equities, fixed income, and cash equivalent investments, it may be time to rethink your allocation.

4. How to View Risk

Managing risk is not about minimizing risk. Instead, the objective of risk management is to take the right amount of risk, of the right kind, at the right times. Just as there is a cost to taking too much risk, there is a cost to taking too little. The goal is to take the right amount of risk, no more and no less, to generate the optimal expected returns for each portfolio. Utilizing uncorrelated strategies within a traditional portfolio is an effective tool for managing risk, delivering real long-term diversification benefits, building resiliency, and producing better results for investors.

“The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk”

– Seth Klarman

We tend to think of “risk” in predominantly negative terms. However, risk is necessary and inseparable from desirable performance in the investment world. How much risk an investor should accept depends entirely on the individual investor’s tolerance for risk.

5. Grow your Purchasing Power

We often link a client without a plan to one driving through the Rocky Mountains. You will get to your destination, but it will be a windy road to get there. Developing a plan will help you find a “straighter” path and reach your goals sooner.

“Planning is bringing the future into the present so that you can do something about it now”

– Alan Lakein

High-net-worth estates can require more detailed attention and assessment. The more money you own, the more intricate the process of managing it. Therefore, high-net- worth financial planning is a must for individuals belonging to high-income groups. It can help you manage your money well, invest in suitable instruments, lower your tax, plan your retirement and succession, and leave a sizable legacy behind for future generations.

6. Start Planning for the Next Generations

It’s one of those things that is so simple it is easy to put off. Don’t. Getting a will drafted and signed is one of the most important documents to have in place to ensure your wishes are carried out. It will ensure that your loved ones are provided for and protected, and most importantly, provide them peace of mind and allow them to grieve.

“Estate planning is an important and everlasting gift you can give your family”

– Suze Orman

Irrespective of the drivers, succession and wealth transfer typically boil down to one thing – the desire for founders or principals to make sure as much of their wealth passes on to the next generation most effectively. This doesn’t happen without a plan.

7. Prioritize Knowledge Transfer

Ensure your spouse, adult children, and/or guardian know your team of professionals. That includes your accountant, financial advisor, insurance agent, attorney, banker, etc. In addition to video or face-to-face introductions, put all contact information, asset description, and asset location into a one-page document. Review and update it yearly. Distribute it to those who might need it.

According to a study done by NASDAQ, 70% of families lose their wealth by the second generation.

Knowledge transfer plays a key role in the succession process. This knowledge can be in the form of subject matter expertise, existing professional relationships, or critical decision-making processes. Staying on top of your goals and priorities leads to an estate and legacy plan that acts as a roadmap for future generations, ensuring they use your wealth wisely and carry forward your positive impact.

8. Manage Biases

It’s challenging to invest in equities on your own behalf. Every investor has biases. Investors typically buy at the top of the market when everybody else is buying. Then they sell at the bottom when everyone else is selling. It’s so common that mutual fund investors, on average, do worse than the returns of the funds they invest in. That’s because they buy and sell at the wrong times.

“Be fearful when others are greedy, and greedy when others are fearful”

– Warren Buffett

While we cannot cure the behavioral biases we’re born with, we can try to mitigate their effects. By employing systems intended to counteract these instincts, such as utilizing feedback, audit trails for decisions, and checklists, we can make more rational decisions and improve the chances of investment success.

9. Patience is a Virtue

Building a Warren Buffett-sized portfolio won’t happen overnight or within a week. Investing in get-rich-quick schemes is usually an investment to avoid. If you want to give your investments the best chance of earning a return, then it’s a good idea to cultivate the art of patience. The best returns tend to come from sticking with a long- term commitment to your investments. Developing the art of patience will help keep you focused on your goals.

“The stock market is a device to transfer money from the impatient to the patient”

– Warren Buffett

Successful investors develop many valuable skills over their lifetimes. You’re not born knowing how to research a stock or how to apply critical thinking to an investment opportunity — those are investing skills some people learn and develop. Next time market volatility strikes, consider patience as an active choice and one of the most potentially rewarding decisions you can make as an investor over time.

10. Life is Short – Enjoy it

You can see our genuine #1 recommendation if you have reached this point. The single best investment you can make is in yourself. Life can be short; unfortunately, we see it all too often in this industry. We aren’t saying to spend all your money and not save for the future. Instead, build a budget incorporating the things you enjoy and make sure your “life” does not take over.

Enjoy the little things in life… one day you will look back and realize they were the big things!

Creating a balance is key to enjoying life now and in the future. Enjoying yourself today means understanding what you need to feel like you’re living fully and getting to experience the things that are most important to you. After all, tomorrow isn’t promised.
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Bilyk Financial serves individuals, families, entrepreneurs, professionals, and organizations with complex wealth management needs.

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