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How High-Net-Worth Individuals Invest: Asset Allocation

Asset allocation is a key consideration for all investors, but it holds even greater significance for individuals with substantial wealth. High-net-worth individuals should pay particular attention to asset allocation, as it plays a crucial role in their investment strategy.

What is Asset Allocation

Asset allocation is a critical investment strategy that involves diversifying your investment portfolio among different asset classes, such as stocks, bonds, real estate, and cash. Asset allocation aims to balance risk and reward according to your specific goals, risk tolerance, and investment horizon. By diversifying investments across various asset classes, you can potentially reduce the volatility of your portfolio and improve your chances of achieving more stable returns over time.

The Importance of Asset Allocation for High-Net-Worth Individuals

Given their substantial financial resources, high-net-worth individuals often have more complex financial goals and a greater risk tolerance, making a well-thought-out asset allocation strategy essential. This diversification helps to mitigate the potential impact of market volatility on their portfolios, thereby preserving and growing their wealth over time.

Moreover, asset allocation enables you to tailor your investment strategy to your specific financial objectives and time horizons. For instance, those planning for retirement may favor a more conservative approach with a higher allocation in bonds and income-generating assets, such as dividend-paying stocks, whereas those looking for aggressive growth might lean towards equities and alternative investments. This customization ensures that your investment portfolio aligns with your unique risk tolerance, liquidity needs, and long-term goals, providing a clearer path to financial security and legacy building.

Another reason asset allocation is important for high-net-worth individuals is the flexibility to capitalize on market opportunities and adjust to changing economic conditions. By regularly reviewing and rebalancing your portfolio, you can take advantage of emerging trends, work against inflation, and adjust to changes in your personal life or the economy.

The Risk of Not Following an Asset Allocation Strategy

One of the primary risks is market volatility. Without a diversified portfolio, you are more susceptible to the fluctuations of a single asset class, which can lead to substantial losses during economic downturns. Asset allocation helps distribute risk and can provide a buffer against market swings.

Another significant risk associated with poor asset allocation is liquidity risk. If you are a high-net-worth individual, you likely have a mix of liquid and illiquid assets. Without a proper balance, you might find yourself in a situation where you cannot easily access cash when needed. This can be particularly problematic in times of emergency or when an unforeseen investment opportunity arises. Ensuring a portion of the portfolio is in liquid assets like cash or easily tradable securities can mitigate this risk and provide financial flexibility.

Lastly, tax inefficiency is a critical concern. Different types of investments are subject to varying tax treatments, and without strategic asset allocation, high-net-worth individuals might end up with a higher tax burden than necessary. By allocating assets in a tax-efficient manner — such as placing tax-inefficient investments in tax-advantaged accounts — you can optimize your after-tax returns.

Diversify Your Investment Portfolio

Are you looking for help to diversify your investment portfolio? Bloom Investment Counsel, Inc. is pleased to work with your other trusted financial partners to ensure that all your needs are met including but not limited to: tax, estate, legacy and income.

For close to 40 years Bloom has been providing customized, actively managed portfolios for high-net-worth individuals, family offices, corporations, institutions, foundations and trusts. Contact us by email at or by phone at 416–861–9941 to learn more.

This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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