The Most Important Points From “Managing Your Wealth: A Must-Read for Affluent Families” by Christopher F. Poch

“We all face the same problems managing our wealth. We don’t want to buy stocks or mutual funds; we want to retire comfortably, pay for college, and if we have enough, we want to help others, educate the poor, endow a hospital, or cure cancer.

In order to start, you need to know where you are, where you want to go, and then how to get there. Don’t jump right into the investments. Start with a personal financial statement. A Personal Financial Statement is a document, not a $ 10MM house or $ 300K car.

Do you need a financial plan? Yes, we all do, but at this stage it doesn’t have to be formal or in great detail. Too many people start the financial planning process only to abandon it because the time involved was more than they expected. To start, you only need to know the basics: 1. How much money you need to do what you want. 2. From where the cash flow will come.

Low fees are great, but avoid the bait-and-switch. When it is all said and done, high-quality wealth management firms will charge between .75% and 1.5% on assets under management in most relationships.

Ask how your advisors will educate you and keep you calm when others are not.

Primary point of contact. Look for one professional to take on the responsibility as your primary advisor to navigate and integrate the myriad of issues and options. He or she should be a seasoned, experienced professional who will proactively contact you whenever there is information, actions, or recommendations to be considered.

Avoid permanent losses. Define risk as the likelihood of permanent impairment of capital, as opposed to price volatility, and make every effort to avoid large losses so that your wealth can compound at attractive rates over time. The power of compounding wealth is enormous.

Long-term view. Short-term performance is unpredictable. The surest path to generating attractive investment returns is to maintain a long-term focus.

The return for the average investor in an index fund has historically been much worse than the published time-weighted returns. Dalbar2 studies over the last 20 years show the average investor earns about 40% of the index. The reality is most people don’t have the stomach to be responsible for making global economic decisions when the market sells off 20%-30%.

Keep in mind that most hedge funds close inside of five years of launch due to poor performance. Private equity has the advantage of taking a long-term view, improving management, and providing guidance, as well as capital. This too has become a crowded industry and understanding how returns are calculated takes an advanced math degree. As the wise carpenter says: Measure twice before you cut.

Set expectations. If you have a consulting relationship, determine in advance what you expect of the consultant. Investment results should be reviewed each quarter but can only be fairly evaluated after several years.

If an investment consultant claims to be or wants to be “nimble,” they are in the wrong business. Institutions think in terms of decades and should position their portfolios for trends, not trades. The requirement to be nimble should be reserved for portfolio managers, OCIOs, and hedge fund traders.

Every new client relationship requires a leap of faith on both sides. The client hopes the new advisor gives sound advice, good service, competitive returns, and sees the family through good and bad times. The advisor hopes the family is patient through difficult markets and stays long enough to recoup the sunk costs of onboarding a new relationship. Few clients know what great service entails and how to be sure to receive it. Establishing proper expectations will help you get experience you deserve and create the long-lasting, gratifying relationship the advisor seeks”.



Source: ”Managing Your Wealth: A Must-Read for Affluent Families” by Christopher F. Poch

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