Part of the mission of The Whitlock Co. is to foster wealth management for high-net-worth individuals by devising a long-term strategy to preserve what you’ve earned.

As such, we are members of The Professionals Alliance Group, and we collaborate with Oppenheimer & Co. to help you develop comprehensive strategies suitable to your financial objectives. Oppenheimer’s goal is to create a holistic financial planning process to identify your unique, individual needs to grow wealth while managing risk.

One of the best ways to manage risk in wealth management is to have a diversified portfolio, which we’ll explain in more detail.

We all want to invest in money markets to try to get a higher rate of return and faster.

However, that’s not practical when the financial markets move to bear territory, and they decline for weeks at a time.

The main idea behind a diversified portfolio is to vary your investments to lower your risks of losing money while playing for long-term gains. Even after the Great Recession in 2008, stocks on the S&P 500 in 10 years regained more than 300 percent from its intraday low in 2009. 

Further, by the time an average investor reacts to a stock market plunge, most of the damage is already done, and there’s little more anyone can do except ride it out with an investment horizon that looks at least five years into the future.

Long-term growth is the key metric here. 

There are plenty of vehicles for investments that you don’t have to physically purchase if you don’t want to. Meaning, when you choose to invest in precious metals, you don’t have to physically buy bars of gold or platinum and haul them to your vault. Rather, you can invest in companies that buy and sell precious metals.

A strategy called dollar-cost averaging provides a framework for systematically investing equal amounts of money over a certain time period regardless of the price. For instance, your assets gained $5,000 over one month, 50 percent coming from a mutual fund, 25 percent coming from precious metals ETFs, and 25 percent from real estate investment trusts. Rather than keep those same percentages in those equities, you redistribute the $5,000 among the three equally (33.3 percent) into each type of investment. This strategy mitigates risk should one of those three investments not pay off over a certain period of time.

Stocks are big-ticket investments when it comes to wealth management. Even with stocks, it’s wise to diversify your holdings. Rather than put 75 percent into the energy sector (oil, gas, renewables) and another 25 percent in retail (Amazon, Walmart, Target), your diversification should include international investments and not just domestic ones.

For instance, your stock diversification might look like this:

  • Retail, 20 percent
  • Energy, 20 percent
  • Transportation, 20 percent
  • Consumer staples, 10 percent
  • International, 10 percent
  • Industrial, 10 percent
  • Emerging markets, 5 percent
  • Small-cap, 5 percent

You might hear the terms “asset allocation” and “diversification” used interchangeably. These two terms are not quite the same.

Asset allocation focuses investments on a variety of asset classes. 

These classes include:

  • Stocks, issued by companies and commonly traded on public stock exchanges
  • Bonds, or investments issued by public entities to raise investment capital
  • Mutual funds, long-term investments grouped together as one package
  • Precious metals, like gold, platinum, silver, and palladium)
  • Real estate, or land
  • Commodities, goods that people buy and consume like food, grain, meat
  • International stocks, from companies traded on stock exchanges within and outside of the country of issue
  • Emerging markets, such as those in Africa
  • Cash and currency
  • Savings accounts

Diversification refers to a range of investments within an asset class.

Diversifying a stock portfolio might look like this:

  • Large-cap (Market capitalization of $10 billion or higher), 30 percent 
  • Mid-cap (Market cap between $2 billion and $10 billion), 30 percent
  • Small-cap (Market cap between $300 million and $2 billion), 20 percent
  • Micro-cap (Market cap between $50 million and $300 million), 10 percent
  • Nano-cap (Market cap under $50 million), 5 percent
  • International stocks, 5 percent

Mutual funds are popular ways to diversify your investments. There are two ways to go about investing in mutual funds: Find fantastic funds that offer steady returns over the long term (we mean decades for this), or create your own mutual fund based on groupings of stocks you like. If you feel so inclined, your own investing strategy could mimic that of Warren Buffet.

  1. Create a plan. Your plan will give you a framework for your investments. What kind of wealth do you want to accumulate over the years? Do you want to maintain your current quality of life, increase it, or decrease it by the time you retire?
  2. Adopt a risk level you can live with. Every investment carries risk. Before you invest, determine what level of risk you can accept. Are you prepared to lose 5 percent, 10 percent, or 20 percent in the short term to realize long-term gains?
  3. Diversify within each asset allocation class. For instance, bonds are one type of asset. Diversify your bonds with treasury bonds, municipal, agency, savings, and corporate.
  4. Understand tax implications. When you cash out certain investments, you’ll have to pay taxes on the capital gains. Make sure you understand the tax implications of these investments when you file returns every year.
  5. Get a stalwart partner on your side. Having a wealth management firm on your side can help you navigate the sometimes dizzying prospect of what to invest your hard-earned money in. 


Have more questions about wealth management and your portfolio? Reach out to the team at The Whitlock Co. We can help!


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