A Practical Guide for High Net Worth Asset Allocation

For high-net-worth individuals, asset allocation can appear challenging. There are a broad spectrum of factors to consider, such as what kind of assets to build your portfolio on and what percentage they should occupy. How do you balance risk tolerance with protecting your wealth? It can seem like each question leads to another.

Fortunately, with the help of an experienced team of wealth managers, you can develop a high-net-worth asset allocation strategy to help meet your specific goals. In this guide, we’ll outline some key principles to keep in mind as you develop your own high-net-worth asset allocation strategy.

Smart Diversification is the Founding Principle of Any Strong Portfolio

The first and most important principle to remember is the importance of diversification. When you invest across a broad range of solid assets, you spread out your risk.

For example, if one asset class underperforms, hopefully, another could compensate for those losses. If stocks are struggling globally but real estate is doing well in your local market, then a diverse portfolio can help protect you from bearing the brunt of Wall Street losses.

How Much Pure Cash Should You Have in Your Portfolio?

Most high-net-worth individuals have their wealth tied to various assets rather than a large bank account with all of their money in it. That does not mean that you cannot include liquid cash in your asset pool.

While there is no single universal answer for how much cash you should have, a good general practice is to keep at least three to six months’ worth of living expenses in cash or in an easily accessible account. You could also consult with a wealth manager to determine a percentage of your entire portfolio to allocate toward pure cash.

Invest The Rest of Your Wealth Elsewhere

Once you have determined how much cash to include in your portfolio, you should invest the remainder into other assets.

There are many different asset classes you can choose from, such as stocks, bonds, real estate, and private equity. Your wealth manager can help you determine which assets are right for your portfolio based on your individual goals and risk tolerance.

For example, if you are retired or close to retirement, you may want to allocate a larger percentage of your portfolio toward fixed-income investments like bonds. On the other hand, if you have a longer time horizon until retirement, you may be able to afford more risk and could benefit from investing a larger percentage of your portfolio in more volatile verticals like stocks or real estate.

Once you have established a solid foundation for your portfolio, you can also consider investing a smaller percentage into alternatives or less-conventional assets. Some examples could include:

  • Blue-chip art pieces
  • Valuable collectibles like sports memorabilia or vintage comic books
  • Rare historical memorabilia
  • Cryptocurrencies and non-fungible tokens (NFTs)
  • Startup businesses

Remember to Review and Rebalance Your Portfolio Regularly

Your high net worth asset allocation strategy is not a set-it-and-forget-it proposition. As time goes on, market conditions will change, as will your personal circumstances. That is why it is important to review and rebalance your portfolio regularly.

Here, a wealth management team can prove an invaluable resource. They can alert you to evolving trends and recommend asset reallocations to help you rebalance your portfolio to compensate for market volatility. This ensures that your portfolio remains strong in the face of potential threats so that you can better safeguard your wealth.

Market Volatility Will Always Affect Your Portfolio to Some Degree

While a well-diversified high net worth asset allocation can help mitigate the effects of market volatility, it is important to remember that no portfolio is ever completely safe from downturns. Markets can change course at a moment’s notice and decimate an imbalanced portfolio.

This is why understanding and determining risk tolerance is important. If you are risk-averse with investing and want to maintain a conservative approach to your portfolio, a wealth manager can help you create a strategy to lessen the impact of volatility as much as possible in line with your goals. Conversely, if you want to take higher-risk chances with your wealth, an expert advisor can also assist you in determining potential high-return opportunities.

The Ultimate Goal of Your Portfolio Should be to Sustain your Wealth as Long as Possible

While asset allocation does involve generating profitable returns, the overall goal should be to protect and preserve your wealth over the long term. This means creating a portfolio that can withstand market volatility and still remain strong.

Get Assistance with High-Net-Worth Asset Allocation Today

At Hutchinson Family Office, our team of wealth management professionals combines their expertise to provide a dedicated service to high net worth clients. If you are looking to strengthen your portfolio and diversify your assets sustainably, contact us today for more information on how we can best assist you.

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