Expand beyond public equities and bonds
Allocating to private markets is a common move for high net worth portfolios. Private equity, private credit, real estate, and infrastructure can offer return and income streams that are less correlated with public markets. Consider a mix of:
– Direct investments and co-investments to reduce fee layers
– Fund commitments for access and diversification
– Real assets for inflation protection and yield
Be mindful of illiquidity: balance private allocations with liquid reserves to meet cash needs and opportunities.
Prioritize tax efficiency and wealth transfer
Small adjustments can produce disproportionate benefits when taxes are significant. Strategies often used include:
– Donor-advised funds and charitable trusts to accelerate tax deductions and structure giving
– Grantor trusts and dynasty trust structures for multi-generational planning
– Tax-loss harvesting across taxable accounts and opportunistic realization of gains in low-income years
– Asset location optimization: placing higher-taxed income in tax-advantaged accounts where possible
Work with experienced tax counsel to align investments with jurisdictional rules and minimize unintended tax events.
Manage concentrated positions and company equity
Many high net worth individuals hold concentrated stock positions from founders or early employees. Typical approaches:
– Diversification through structured sales, hedging with collars or options, and staged monetization
– Using trusts or private exchanges to transfer or sell shares while addressing tax and control considerations
– Exploring liquidity solutions like secondary markets or structured credit secured by shares to access capital without immediate disposition
Assess hedge costs, tax implications, and insider trading constraints.
Incorporate risk management and liquidity planning
High-net-worth strategies should explicitly address tail risk and liquidity needs:
– Maintain a short-term liquidity buffer sized to personal and business cash flow
– Use derivatives judiciously for downside protection or to synthetically adjust exposures
– Stress-test portfolios for sharp market moves, interest-rate shifts, and concentrated exposures
Liquidity planning reduces the chance of forced sales in dislocation events.
Consider alternative income and yield strategies
With yield a central concern, look beyond traditional fixed income:
– Private credit and direct lending for higher spreads, with due diligence on borrower credit and covenants
– Real estate and infrastructure for income plus inflation linkage
– Structured products and preferred securities for targeted yield profiles
Evaluate counterparty, credit, and interest-rate risks carefully.
Governance, reporting, and the human element
As portfolios grow, formal governance becomes essential. Establish clear investment policy statements, regular reporting, and decision-making protocols.
For families, define roles, succession plans, and philanthropic principles to reduce conflicts and preserve wealth across generations.
Partner with specialists
Given the complexity of available tools, collaborate with a team that includes tax advisors, estate planners, private market specialists, and custody experts.
A coordinated approach helps optimize returns, control costs, and align strategies with personal goals.
Key actions to consider now: review private-market exposure and liquidity cushions, audit tax and estate structures for efficiency, manage concentrated positions with a disciplined plan, and formalize governance to protect wealth across generations.