Financial Planning For High Net Worth Individuals – Every financial advisor and wealth manager will present you with a financial plan based on the information you bring to him.
On the surface, then, every financial plan seems to have an air of customization. The surprising reality is a bit different. Almost any financial advisor – especially those of large investment firms with branches scattered across the country like fast-food franchises – will give you a plan very similar to the plan they offer to everyone.
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The insights you will discover from the published book will help you integrate various wealth management tools with financial planning, and provide guidelines for your future security along with complex financial strategies so that your human and financial capital can flourish.
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Clients often share with us how the knowledge gained from this book has helped provide them with tremendous clarity, shatter industry ideologies, while providing insight and guidance to make such important financial decisions.
Almost everyone will recommend the same split between stocks and bonds. Almost all will ensure rebalancing. Almost everyone will talk about asset allocation based on your risk tolerance.
If you want a truly personalized plan that gives you the confidence and peace of mind to achieve all your financial and lifestyle goals and aspirations, there are eight essential components, four of which form the core foundation. All other details come from these.
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“I want to retire comfortably” is not a personal or specific goal. Nor “I want to earn x% growth per year.”
Personalized goals are lifestyle goals. what do you want from life What do you hope to achieve before, during and after retirement? How do you want your money to serve you in the next 20, 30, 40 years?
This includes purchases you want to make, homes you want to live in, travel, inheritances and charitable gifts. It also includes your daily lifestyle, which determines your monthly income. Especially in retirement, this question is critical.
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Once you’ve clarified what you really want to achieve in terms of lifestyle, the rest of your financial plan can be built from there. With this approach, you can create a plan that will ensure with as much certainty as possible that you achieve those customized lifestyles.
See the point here? If you are getting everything you want out of life in terms of money and lifestyle, then your plan is working. Your investment performance exists to serve your lifestyle, not serve itself.
When typical financial planners look at your assets, they will use some kind of model to make projections of how much you can expect to earn each year based on their financial plan.
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The problem with this is that if their program doesn’t follow the model it’s based on, then it’s worthless. However, this is what almost every financial planner does, often without realizing it.
Some models use 20 years of historical data. Well, that’s hardly about the semicolon crash. Others go back 30 years. It no longer includes the Black Monday of 1987.
To get really reliable historical data on which to base a plan, you have to stretch it all the way back to before the Great Depression. Pillar’s model begins in 1925. Now your plan will be based on data that includes several major wars, inflationary periods, presidential upheavals, one-day crashes, numerous bear and bull markets, and much more. Now you can test your financial plan against the reality of about 100 years.
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In the Pillar model, your plan will be tested against 1000 different scenarios. These scenarios are exaggerated by the historical data that starts in 1925.
To understand the magnitude of this approach to financial planning, you need to start putting these 8 elements together. In particular, they achieve nothing. Only by integrating them all into a comprehensive financial planning methodology can you extract the value—the peace of mind—you want from a financial plan.
So, combined with components 1-3, the stress tests apply your specific financial and lifestyle goals using a model based on historical data from 1925. If this process discovers that you will achieve your lifestyle goals, the certainty on which that discovery is. based is protected. How much is iron clad? See component #4.
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Obviously there is no such thing as 100%. If a meteor the size of Texas crashes into the United States, your financial plan will likely fail.
But your financial plan should be able to show you – based on historical data – that you will exceed all of your lifestyle goals in 75-90% of these stress test scenarios. All your goals. Not some of them. And you exceed your goals. Don’t just meet them.
If your plan exceeds your goals by 75-90% of these stress tests, which we call the comfort zone, you can have great confidence and peace of mind about your future. You can relax, enjoy life and know you will be taken care of.
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The first four elements of your financial plan are the most critical. Everything else is based on these. By the way, these first four are also the ones that most financial planners get wrong, or don’t even take advantage of.
The next four components make up the second layer of your foundation. Based on the former, they are equally important if your plan is to succeed and sustain yourself for the rest of your life.
Why? Because every plan looks great at first glance. Just as everyone feels optimism and great excitement at the start of a long walk or marathon. But what happens ten years later? What happens when half of your goals have become obsolete and replaced with news that you didn’t even think about when you first developed your plan? What happens if your financial situation suddenly changes (for better or worse)?
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Asset allocation is, according to many experts, the most critical component of any investment plan. Remember the context here. yours
The plan is a subset of your financial plan. The first four components listed above make up the core base, as already stated.
Your allocation is based on your risk tolerance, in part. But your risk tolerance also depends on your goals and the results of your stress tests and historical data. Too many advisors simply ask you what your risk tolerance is, with zero context and nothing but guesswork and personal preferences to guide you.
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Your risk tolerance – in a financial plan like the one we’re discussing – is in a sense not even up to you. Your risk tolerance naturally follows from your stress test results and goals. If a conservative allocation allows you to achieve all of your goals, then your risk tolerance is conservative. If a moderately aggressive allocation at this point in your life is what helps you achieve your goals, then that is your risk tolerance.
For example, we once had a client come to us whose previous managers believed they could outperform the market. (Tip: This is a major warning sign that you need a new advisor. For all 7 warning signs when choosing a financial advisor, click here) [Link to Ultimate Guide]
This manager opened eight accounts with different money managers, all positioned for massive growth while allocating 100% of their assets in stocks. No obligations. Only one in eight beat the market. And this is not unusual at all. [Link to blog 1 – Overpower the market]
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After running his lifestyle goals and plans through our process, we found that this client only needed 30% of his assets in stocks. Far from 100%! With a conservative asset, he will have lower taxes, all his investments in one place, peace of mind and security that he will achieve what is most important to him.
Not all of your assets will work as expected. Some will succeed, some won’t. But allocation is what keeps the program intact in 75-90% of your stress test scenarios. So a critical component of your financial plan is to regularly rebalance your assets to maintain a financially secure asset base.
The only way to achieve true peace of mind – even in retirement, is with a guaranteed monthly income. Therefore, your financial plan should include a monthly amount that you can count on as if it were a salary.
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This income must be sufficient to support the lifestyle you outline in your goals. It should also be an amount that keeps you within the 75-90% comfort zone we keep referring to.
Again – do you see how all these elements of your financial plan work together to produce the secure, focused and successful lifestyle you want?
Your goals, plans, finances and priorities will change. is unstoppable. No one’s program remains intact and relevant for decades.
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Thus, if your financial plan is not regularly updated, its importance begins to deviate from your life until it eventually becomes completely disconnected. For example, let’s say that your initial financial plan allocated a significant portion of the wealth to send two of your grandchildren to the most elite universities.
But then, one grandchild gets a full travel scholarship, and the other decides on a different life path and doesn’t need the money. Now you have hundreds of thousands of dollars that you never expected to have. And let’s say on top of that you’re getting divorced.
Just these two
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