“My strength comes from my abdomen. It’s the centre of gravity and the source of real power.” These words, from martial arts guru Bruce Lee, were recorded for posterity in the 1998 book Bruce Lee: The Art of Expressing the Human Body. As every exercise fundie will know, the powerhouse to which Lee was referring is the core of our bodies, our stability and the centre of our gravity. The strength of our core is vital for health and longevity.
The core of a wealth management portfolio is much the same. The foundation on which you build your wealth structures is critical for ensuring that you have the endurance and the strength to deal with challenges and hard times. Without this core, it becomes increasingly harder to recover from crises, be they personal or as a result of external forces.
The good news is that when it comes to financial fitness, many of your core strengthening exercises take place during the early stages of agreeing and establishing a wealth management plan. After establishing a solid core, you do need to check in with your advisor several times a year to ensure that stability is still in place, but you don’t have to do the equivalent of financial mountain climbers and kettlebells swings on a daily basis to keep buff.
What is essential, however, is to find an advisor who has the right expertise and know-how to work with you to develop your financial core and the up-to-date insights to keep it solid, irrespective of the market conditions. As Anthony Palmer, Group Commercial Director for Carrick Wealth, stresses: “A good financial advisor should focus on really understanding the changing needs and objectives of each client, specifically their willingness and ability to take risks, and build a portfolio to suit these requirements - and then it is their role to maintain that strength by proactively managing the portfolio.”
How do you build a strong financial core?
When it comes to creating a strong financial core, the complexities and requirements of high-net-worth African investors are truly unique. Not only do they have to consider the business, succession planning and structuring considerations common to high-net-worth individuals the world over, but it is also necessary to consider the political and economic challenges inherent in many African nations, volatile and unstable currencies, the regulatory requirements and the need to protect and diversify holdings.
Diversifying your portfolio is the most important consideration for any investor. The intricacies of where and how are critically important in this diversification discussion, with many geographies and ownership structures to consider. Once you have the where and how finalised, strategic asset allocation is the next key consideration as research shows that the correct strategic asset allocation amongst the various asset classes accounts for over 90% of a portfolios out performance. A client's risk profile is vital to understand so that the asset allocation is correct from day one. Once you have this core component set correctly it is down to time in the market with some ongoing adjustments as market conditions change and opportunities present themselves.
A number of HNWI also like to deploy satellite holdings to work in tandem with their portfolios of more traditional assets. These generally include thematic focused equity holdings as well as uncorrelated asset classes such as lower risk structured notes, hedge funds and real assets such as gold. These options highlight another core component, investing in a range of assets and opportunities, not just traditional stocks and bonds. Successful wealth investors appreciate the value of holding physical assets, be it gold or art, land or commercial real estate. But they also hedge their bets by ensuring that they have a broad base of mixed assets which work together to create stability.
Palmer explains: “All portfolios should have diverse building blocks to ensure you capture the upside but also protect your portfolio when markets are down”.
This is where the skilled hand of a knowledgeable advisor comes into play, to ensure that the balance is achieved by holding the right combination of assets which work together to keep the financial core strength in tip-top condition.
“Ultimately, at Carrick Wealth we are looking for stability for our clients, and this is key in terms of risk and appropriate returns,” says Palmer. “Risk is at the forefront of everything we do.”
Get these fundamentals right, and you unlock the real source of your wealth management power.