Three Pillars of Strategic Wealth Management

Three Pillars of Strategic Wealth Management

I’ve blogged about fear’s influence on the decisions which individual investors often make, prompting them to sell when an issue is falling or buy when a stock is already near its peak.

It’s easy to say “stay the course” or “the market is just doing what it does.” But fear is not a light switch, something easily turned off. I reassure my clients by sharing with them my approach of strategic wealth management, which rests on three pillars:

  •   Real diversity of investments
  •   A safety net of bonds and cash, and
  •   Buying on weakness and selling on strength.

Like the analogy of the three-legged stool, each of my three pillars is critical to making the plans I enact for protecting and increasing my clients’ wealth “stand up.” I write much more about each in my book, “You’re Retired! Now What?” But here’s an overview:


Pillar #1: Real diversity of investments

I often structure portfolios with a combination of large, mid, and small-cap equities for long-term growth; bonds for potential income; and liquid assets—such as money markets, cash, and short-term treasuries—to meet more immediate expenses and income needs. 

Experience has convinced me that these can provide the most diversity when designing portfolios to help protect, grow, and distribute the wealth my clients will count on for retirement, and for the fiscal legacies (estates) they’ll leave behind. 

Equities offer real opportunity for growth. Bonds offer higher yields, but fluctuate in value. Cash, meanwhile, only fluctuates in relative value; its greatest strength is its stability.


Pillar #2: A safety net of bonds and cash

The fear I mentioned at the top of this post is real. 

Fanned by talking heads at the height of market corrections, downturns, or outright crashes, such fear has led some of my best clients to pull out of investments which, over the next weeks and months, have exceeded their price prior to that down day.

That’s what fear does—if we allow it to.

Fortunately, the vast majority of my clients understand that a reserve of four to five years in non-equity investments is their safety net. It also allows the final pillar of my approach to strategic wealth management to play its role: building wealth.


Pillar #3: Buy on weakness, sell on strength

When you buy a stock near its historic price peak (typically for fear of missing out), you take a big chance: that it will go higher still. Similarly, when a stock you own is falling but its fundamentals are strong, selling is the opposite of what you should do. 

The prudence of buying and selling at the right price and time extends beyond individual equities.

Through my broker/dealer, I offer a discounted class of mutual funds to my clients, at pricing that was once available only to large institutions. These funds are actively managed, and I add a further layer of management by watching the wider trends, and buying and selling the funds themselves based on what I see—and what more than 30 years in this business has taught me.

Strategic wealth management recognizes when an investment is at a place to take profits, and moves them into another that’s poised for growth.

These three pillars make doing so possible.

Case Studies in Portfolio Management

My approach to wealth management rests on something called strategic diversification. I know—we hear “diversify!” all the time. But what does that really mean? In my experience, it means a lot more than what many of my new clients have done up to the point of our first meeting. That matters because, done properly, strategic diversification has the potential to grow wealth not just as retirement nears, but throughout retirement.

The strategy hinges on active management of a portfolio’s investment allocation. If that sounds like a lot of work, it is. But I love doing it; it keeps me at the top of my game, and assures that I’m constantly fine-tuning my approach to helping clients pursue their dreams. At the core of strategic diversification is one question, which I ask of every client: “What can I do to give you confidence?”

Some want an annual phone call assuring them they are on track. Others take it (much) further. One guy said, “If you think I’m spending too much and at risk of running out of money, call me, AND follow up with a letter, in big red type, that says ‘DO NOT SPEND ONE DIME OVER THIS AMOUNT!’” And I’m fine with that. Sometimes the biggest threat to our wealth is us!

I’ve also had clients that I’ve spent a lot of time educating on the markets’ cycles, explaining that big single-day or multi-day losses are nothing to worry about, and the reasons why. I’ve built them a beautifully balanced portfolio, one I was confident would meet their retirement goals—only to have it decimated when they called my office and demanded I sell their holdings. Why? Because the financial news channels were having a doom-and-gloom field day over the latest downturn in the stock market. Which is just silly.

“Invest for the long haul,” like “diversify!,” is a mantra we hear all the time. Strategic diversification makes the daily swings of the market non-issues. It places your capital in positions that enable you to buy on weakness and sell on strength—not only while you’re still earning, but in retirement, too. I can always tell when a client really “gets” this: he no longer calls when one of his holdings drops.

Now understand, there’s nothing wrong with watching the markets, just like there’s nothing wrong with watching a football game. The risk is in reacting to them, and it makes no difference whether the news on Wall Street is “good” or “bad.” Either way, many individual investors tend to sell when their stocks are dropping or buy when they’re on the rise: the opposite, in either case, of what they should do. But strategic diversification—coupled with active portfolio management, enacted by a trusted advisor who works in your best interest—can leverage market cycles to your benefit. It can be a great way to protect and grow wealth.