Changes in various markets are often compared to waves on the sea or ocean. And those who are aiming for long-term investments know that they need to know how to cope with these waves. They must be able to wait out fluctuations, but this does not mean static suspense. Just as a surfer must be flexible to harness the power of the wave and move in the desired direction, an investor must master the art of dynamic wealth management. Knowledge of these strategies allows them to take into account macro trends and quickly adapt their investment portfolio to chtherotarianmagazine.comanging conditions. If you want to know the specifics of actively managed funds, listen to the advice of Certuity Company, an expert in the field of wealth management consulting with solid experience and a huge client base from ultra high net worth families.
What Is Dynamic Wealth Management?
No matter how wealthy a person or family is, wealth is a variable, not a constant. And to increase it and not lose capital due to inaction or mistakes in investing, you should correctly build your investment strategies. Professor of Business Administration and author of books on active portfolio management Richard Grinold writes about the need to wisely balance your investment portfolio, taking into account two types of rates:
- The rate of information flow, which creates fluctuations in the market, forcing a large number of investors to act in the same way.
- The rate of trading in the portfolio, which depends on whether you can benefit from trading under a certain trading cost.
If you can find this balance, you will be able to maneuver with changing market conditions with ease. This means your wealth will be stable and growing. This is the essence of dynamic wealth management — the ability to quickly respond to the market context but, at the same time, not take unnecessary actions. Every action carries transaction costs: the more actions you take, the more likely it is that the benefits received from them will be largely offset by these costs.
Dynamic vs. Static Wealth Management
To understand which type of wealth management suits you most, it is important to know the specifics of each of them.
| Static Framework | Dynamic Framework | |
| The structure of the portfolio | Fixed since the beginning | Continuously adjusted |
| The goal of the portfolio | To provide a certain stable return profile that would be satisfactory for an investor | Use market conditions to increase profits |
| Risk attitude | The acceptable range of risk can be quite narrow | Dynamic asset allocation by directing part of the capital to highly profitable projects with greater risks and investing the biggest part of the capital in stable low-risk assets |
| Challenges | Static portfolios can become unstable in the long run | Following all market trends is time and resource-consuming |
Static Wealth Management: Pro & Contra
As you can see from this table, static wealth management requires less of your time and attention but, at the same time, does not provide the opportunity to get the maximum profit from investments. Since the distribution of the investment portfolio is fixed from the very beginning, the investor wins on some things and loses on others, but in total, this gives them some stable income. However, the problem with this approach is that under the influence of volatilities, inflation, and correlations that may arise between certain markets, the portfolio may become unstable, which will require crisis management.
Dynamic Wealth Management: Pro & Contra
Dynamic wealth management is beneficial because you respond to all market challenges promptly. This means that none of them can take you by surprise. Moreover, you see how you can benefit from the changing situation and direct part of the funds to more highly profitable projects, even with higher risks. Since the bulk of the funds are invested in low-risk projects, this guarantees the stability of capital. The challenge you will have to deal with is the need to spend a lot of time tracking and analyzing the markets. But high net worth family office Certuity, which has deep expertise in wealth management, can easily cope with this task.
How to Choose the Optimal Wealth Management Strategy
Formulate Your Goals
The first thing you should start with is defining your goals:
- For some, it is enough to maintain their capital at the current level, compensating for inflation and other unfavorable conditions.
- Others have large families and want to increase their wealth for posterity.
- Still, the rest want to manage their wealth by investing in some meaningful social projects, without worrying too much about how much profit they will receive from it.
In any case, choosing a strategy must start with defining a goal.
Determine the Acceptable Risk Level
The choice of risk level depends on many factors, ranging from personal psychological predisposition to the number of people for whom you feel personally responsible, including financial responsibility. The range of acceptable risk will determine what part of the capital can be allocated to riskier projects, and what should be protected from risks. Moreover, this indicator will be one of the leading when choosing specific projects for investment.
Evaluate Expected Returns
Investments are not possible without careful preliminary analysis and assessment. A professional approach to calculating the expected profit will allow you to compare different projects and choose the most optimal one for investment. Also, the work done at this stage will become the basis for further dynamic portfolio management. If you notice that the actual return on an investment will be significantly lower than what you expected when placing it, this will be a signal for the need to take additional action.
Dynamic wealth management allows you to feel more confident by responding to all market trends promptly. Moreover, it opens up new perspectives because by monitoring the markets, you spot new opportunities early on. But at the same time, it requires professional knowledge and a large investment of time. Therefore, it is better to entrust the implementation of dynamic wealth management strategies to professionals who are well-versed in the markets and the principles of building and rebalancing investment portfolios.