Three Pillars of Strategic Wealth Management

09/24/2019 - Wealth
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.

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