What are the Best Wealth Management Investment Options?
This particular question, “What are the best wealth management investment options?” is focused on the word investment. Wealth management encompasses so many different aspects of a person or a family's financial life, so it's important to note in this article we're going to talk only about investment options. We will not be covering insurance, tax, estate planning and other financial management topics at all.
There are many investment options out there that you can look at, and finding the best ones will all depend on your situation. There are many different ways to use investments to reach your goals. Some of the best ones are low-cost ETFs, which give you access to a large basket of stocks or bonds at a very low cost. This option gives you excellent diversification: you can get into one ETF, pay a fee of less than 10 basis points, and have access to corporate and government bonds of all different durations and credit ratings. It's the same with stocks. You can buy one ETF at a very low cost of less than 10 basis points, and you'll own all different types of stock inside the U.S. or around the world. You can have value, growth, blend, small cap, mid cap, large cap, and you can cover a wide variety of sectors like technology, financial, energy, and all the other sectors within the stock market. So that's one great investment option.
Another great investment option is just to continue to buy individual stocks, which of course has no management fee. With buying individual stocks, it's a little more difficult to get the same degree of diversification that you would get in a low-cost ETF or low-cost mutual fund. Some of the best low-cost mutual funds are from DFA or Vanguard, and then some of the best low-cost ETFs are from SPDR, Vanguard, and those are the only two.
Then we have individual bonds that you can buy, which will not move as much with interest rate movement as an ETF or mutual fund. As long as you hold the individual bond to maturity, you're going to get the guaranteed rate unless the company or the government issue are defaults.
Since we're talking about wealth management, we're usually referring to people with investable assets of $1M or higher. That means you can also look at private equity and hedge funds. I believe that as we move into the decade of the 2020s, with bonds being at all-time highs because interest rates are so low, and they have very little place to go but down, that hedge funds are going to become more beneficial to a person's portfolio.
As we look at S&P 500 being on an 11-year upward trend since the beginning of 2009, they've gone up so much, and now their price-to-earnings ratio is much higher than the historical norm of around 16 or 17, we also see bonds with interest rates at all time lows, which means that bonds themselves are at all time highs. With those aspects in mind, I do think that both real estate hedge funds and even some private equity could be beneficial. Keep in mind that there are also different types of annuities that you don't have to pay commissions to get into or out of if you work with a fee-based financial planner.
The annuities that Clark Howard does not like are the ones that have commissions and are sold by insurance agents. The annuities that financial planners like our firm deal with have no commission to get into or out of, and they still offer you a buffer that gives you a 10%, 20%, or even a 30% protection, downside protection, on your money. Let's say that the stock market goes down 10%: you don't lose any money. If it goes down 20%, and you're in an annuity with the 10% buffer, your money goes down only 10%. If you had a 20% buffer and the stock market went down 20%, your money would not go down at all, and if the stock market went down 30%, your account would only go down 10%. That's another product that can be used when you're looking at wealth management investment options.
Now let's go back and briefly talk about the hedge funds. People try to make them exciting, but the truth is that they're nothing that spectacular or mysterious or exciting. They're very expensive. What they do is provide you with an asset in your portfolio that does not typically perform like the U.S. stock market. I think that's going to be a very good thing over the next 10 years. I believe that during this decade of the 2020s we are going to see a year or two where the stock market has a tremendous drop. I think the rest of the years will be fine, but that's probably what's going to throw this decade. It won't perform nearly as well as the 2010s, which would be from 2010 until December 31st of 2019.
The thing to remember is that hedge funds are expensive. You have to make sure you find a hedge fund manager that has an extremely long track record, 10 or 15 years, or even longer. When you put this in your portfolio, it'll hopefully provide you with some positive returns, even if the stock market goes down. Hedge funds are not meant to be in your portfolio to make a ton of money. That would be more like a private equity situation, where you can hit a grand slam with a company that's new. A hedge fund is more like a situation where you get a non-correlated asset class to global stocks. I believe that that's going to be very important, and it's something that will be looking at with our clients for a minor portion of their portfolio. Hedge funds will still never be a core position in your portfolio in my opinion.
These are the best options for wealth management that are investments. Which ones you choose is dependent on your own personal situation. Hopefully this overview gives you an idea of what these investment options do best and which ones will work for you.
If you want to discuss any of these wealth management options and which may be best suited for you then set up a short 20 minute call with me to discuss your investment strategy and get a free 2nd opinion on your investment portfolio: https://calendly.com/thomascloud/retirement-ready-success-call. There is no cost or obligation.
Also I encourage you to watch my free retirement video: https://go.thirdactretirement.com/strategy