Posts tagged: personal financial statement

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. Read more »


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