High-Net-Worth Investment Strategies: Building a Portfolio Around Complex Wealth

High-net-worth investors often face investment decisions that extend well beyond choosing individual securities or determining a basic mix of stocks and bonds.

Wealth may be distributed across taxable investment accounts, retirement assets, privately held businesses, real estate, concentrated stock positions, trusts, and other investments. At the same time, the portfolio may need to support current spending, future generations, charitable objectives, taxes, and other long-term commitments.

As financial complexity increases, investment strategy becomes less about finding a particular investment and more about coordinating the different parts of the financial picture.

Start With the Investor's Objectives

Portfolio construction should begin with an understanding of what the assets are intended to accomplish.

A high-net-worth investor may have several objectives operating simultaneously. Some assets may be intended to provide current income, while others are positioned for long-term growth, future generations, philanthropy, or a significant future purchase.

The appropriate investment strategy can depend on factors such as:

• Time horizon

• Spending requirements

• Liquidity needs

• Risk tolerance and risk capacity

• Tax considerations

• Business ownership

• Estate and legacy objectives

• Charitable priorities

Defining these objectives can help establish the role each part of the portfolio is intended to serve.

View Asset Allocation Across the Entire Balance Sheet

Traditional asset allocation generally considers how a portfolio is divided among equities, fixed income, cash, and other investments.

For investors with more complex wealth, the analysis may need to go further.

A business owner, for example, may have substantial economic exposure to one industry through a privately held company. An executive may have significant exposure to an employer through stock compensation. A real estate investor may hold considerable assets tied to a particular geographic market.

Those exposures can affect the risk of the household even if they do not appear in a traditional investment account.

Evaluating the broader balance sheet can provide a more complete understanding of diversification and concentration.

Manage Concentrated Positions Deliberately

Concentrated holdings are common among founders, executives, and investors who have accumulated wealth through a successful company or long-held investment.

These positions can create a difficult tradeoff.

Selling may generate substantial taxes or require an investor to reduce exposure to an asset with significant personal or financial importance. Retaining the position, however, may leave a large portion of the family's wealth dependent on the performance of a single company.

A diversification plan may consider staged sales, tax-lot selection, charitable strategies, available losses, liquidity requirements, and other factors.

The appropriate approach depends on the investor's circumstances. The objective is not necessarily to eliminate concentration immediately but to understand the risk and determine whether it remains appropriate within the broader financial plan.

Incorporate Tax Awareness Into Portfolio Decisions

For high-net-worth investors, investment returns and tax consequences are often closely connected.

Tax-aware portfolio management may include strategies such as tax-loss harvesting, asset location, tax-sensitive rebalancing, charitable giving of appreciated assets, and thoughtful management of realized gains.

The appropriate strategy can vary significantly depending on account type, holding period, income, state of residence, cost basis, and other circumstances.

Taxes should not be considered in isolation.

Avoiding a taxable gain may not be beneficial if doing so leaves the investor with excessive concentration or prevents a necessary portfolio adjustment. The goal is to consider after-tax consequences while maintaining an investment strategy consistent with the investor's objectives and risk profile.

Maintain Appropriate Liquidity

An investor can have substantial net worth while still facing liquidity constraints.

Privately held businesses, real estate, private investments, and other illiquid assets may represent significant value but may not be readily available when cash is needed.

Liquidity planning can help ensure that near-term obligations do not require the investor to sell long-term assets at an undesirable time.

Potential liquidity needs may include:

• Regular spending

• Taxes

• Capital calls

• Real estate purchases

• Business investments

• Charitable commitments

• Family support

• Large planned expenditures

Maintaining appropriate liquid resources can provide greater flexibility when markets or personal circumstances change.

Evaluate Alternative Investments in Context

High-net-worth investors may have access to investment opportunities outside traditional publicly traded stocks and bonds.

Depending on the investor, these may include private equity, private credit, real estate, hedge fund strategies, or other alternative investments.

These investments can have different return drivers and may provide diversification opportunities, but they can also introduce additional risks.

Potential considerations include limited liquidity, longer holding periods, valuation uncertainty, higher fees, leverage, manager selection, complex tax reporting, and restrictions on accessing capital.

An alternative investment should therefore be evaluated based on the role it is expected to play within the overall portfolio rather than simply because it is available to sophisticated or accredited investors.

Coordinate Investment and Estate Planning

For families planning to transfer wealth across generations, investment strategy and estate planning can become closely connected.

Assets held in trusts may have different time horizons, distribution requirements, tax considerations, and beneficiaries than assets held individually.

The investment strategy should reflect those differences.

A portfolio intended to support the current generation may require a different balance of liquidity, income, and growth than assets intended primarily for children, grandchildren, or charitable organizations.

Coordination among investment advisors, estate-planning attorneys, and tax professionals can help ensure that portfolio decisions remain consistent with the purpose of the assets and the structure through which they are owned.

Incorporate Charitable Objectives

Philanthropy may also be part of the investment and wealth-planning process.

Investors with charitable objectives may consider direct gifts, donor-advised funds, private foundations, charitable trusts, or other arrangements depending on their circumstances.

Appreciated securities may also play a role in charitable planning.

The appropriate strategy depends on the donor's objectives, the assets involved, timing, desired level of family participation, and applicable tax considerations.

Charitable strategies should be evaluated with qualified tax and legal professionals before implementation.

Consider Risk Beyond Market Volatility

Portfolio risk is often associated with fluctuations in market value, but high-net-worth investors may face other forms of risk as well.

Concentration risk, liquidity risk, credit exposure, leverage, business risk, inflation, taxes, and family circumstances may all affect the financial plan.

An investor may also have liabilities or future commitments that should be considered when determining how much investment risk is appropriate.

This makes risk management a broader exercise than simply selecting a target level of portfolio volatility.

Review the Strategy as Wealth Evolves

A portfolio that was appropriate several years ago may no longer reflect an investor's circumstances.

A business sale, inheritance, retirement, relocation, charitable gift, significant market appreciation, or change in family circumstances can alter investment objectives and risk considerations.

Regular review can help identify whether the portfolio has become concentrated, whether liquidity remains adequate, and whether the asset allocation continues to support the investor's objectives.

Rebalancing and other portfolio adjustments can then be considered within the context of the broader financial plan rather than in response to short-term market movements.

Bringing the Pieces Together

High-net-worth investment management involves coordinating multiple financial considerations.

Asset allocation, diversification, taxes, liquidity, concentrated wealth, private investments, estate planning, and charitable objectives can all influence one another.

At Parkview Partners Capital Management, we believe portfolio strategy should begin with an understanding of the investor's complete financial circumstances and long-term objectives.

No investment strategy can eliminate market risk or guarantee a particular outcome. A coordinated approach, however, can help investors evaluate opportunities and risks within the context of their broader wealth rather than treating each investment decision in isolation. At Parkview Partners Capital Management, we understand the complexities of building a lasting legacy. To discuss how these strategies might apply to your specific situation, contact our team for a personalized consultation.