What Assets Make Up Wealth?

This is the time of year where our office is busily updating our clients’ net worth statements.  Net worth is the best measure of both your current financial health and the financial progress you’re making over time.  Remember that your net worth, simply put, is the sum of all the financial assets you own minus all of the debts that you owe. Almost every good financial decision you can make serves to either grow or protect your net worth. For example, saving and investing increase your the financial assets you own, while paying off debt decreases the amount you owe.

The Visual Capitalist recently published the fascinating chart below that examines how the composition of assets varies by net worth.

It’s readily apparent that the asset mix changes greatly between lower and higher net worths:

Primary Residence:
This is by far the most important asset class for all net worth tiers up to $1 million.

Vehicle:
For the $10k net worth tier, the value of a vehicle is more than investments such as pensions, IRAs, mutual funds, stocks, etc.

Stocks:
The proportion of directly-held stock increases up the tiers, and billionaires hold a significant portion of wealth in stocks.

Business Interests:
Most multi-millionaires or billionaires are not liquid, and have most of their wealth in business interests.

Smart Questions Clients Ask

  • How much will your financial advisory services cost me, all-in?
  • What will the additional trading costs be, if any, to implement your strategy?
  • What are the internal expenses of the funds you use, if any?
  • What might the taxes on gains or income look like, on average?
  • Are there costs associated with our transactions that I may not see but will have an effect on my net returns?

These are the questions we get asked by the savviest people who inquire at our firm.  Not everyone knows to ask these but we make sure to answer them anyway.  Offering transparency around costs is important.  If your financial advisor is not able to give you clear answers to these smart questions, you need to reconsider if your advisor has your best interests in mind.

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Behind the Curtain: Pro vs. Amateur Advisors

For most people, it is very difficult to discern a truly good advisor from a lackluster hack — a professional versus an amateur.  To help you recognize the difference, we want to highlight a deeply insightful article penned by Josh Brown, aka The Reformed Broker.  Here is Josh’s wisdom reformatted and mildly edited for easy consumption:

Professionals take this opportunity to manage client expectations, pointing out that 2017’s returns were above average (by about triple) and unlikely to represent an average annual return going forward. Amateurs use the returns of last year to raise more money. “I made you 18% in 2017, let’s talk about the assets you’re still holding away from me. And maybe some referrals.”
Professionals maintain allocations through the start of January, with perhaps some rebalancing. Amateurs turn over positions, incurring commissions and possibly taxes, and start to talk about the “playbook” for the New Year.
Professionals point to the holdings that didn’t keep up with US and global stocks as a teachable moment and a reminder that for diversification to work, not everything can be going up at the same time. Amateurs look for replacements for the holdings that are “disappointing” the clients, switch out managers based on last year’s performance and cut down exposure to asset classes that aren’t “working.”
Professionals review client financial plans and have uncomfortable but essential conversations with households that are falling short of their stated goals. Amateurs traffic in “Five Hot Stocks for 2018” and send out three-year return charts for funds they want to add to portfolios.
Professionals talk to clients who are far outpacing their goals about enjoying life more now. Amateurs talk to clients about adding new hedging strategies and more alternatives.
Professionals admit they don’t know what the new year will bring, and focus instead on the durability of what they’re doing. Amateurs have year-end price targets and can’t-miss sector bets.
Professionals will keep clients focused on the important stuff and get the job done in 2018, come what may. Amateurs will direct client attention to all the wrong metrics and inevitably fall short, which means more prospecting come 2019 to replace disenchanted and under-served clients.
ABOUT US

We are a fee-only, independent fiduciary advisor. Our allegiance rests solely with our clients and their best interests. We are headquartered in Charlotte, North Carolina and serve client families across the nation.



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