Financial Advisor Insights

What are the Basics of Investment Strategies?

What are the Basics of Investment Strategies?
March 4, 2024


Investing can seem complicated, but having a solid grasp of investment basics is the foundation for building long-term wealth. For high net worth individuals (“HNWIs”) and families, developing customized investment strategies aligned to their specific financial goals and risk tolerance is key. This article will provide an overview of five core investment strategy components that are particularly relevant for HNWIs.

Asset Allocation

Asset allocation refers to how you divide your investment portfolio across different asset classes like stocks, bonds, real estate, alternatives, and cash [1]. It's one of the most important factors determining your portfolio's risk-return profile.

Younger HNWI investors with longer time horizons can generally tolerate more portfolio risk and volatility. As such, having higher equity allocations while minimizing fixed income and cash is often appropriate [2]. However, the exact asset mix should align to your personal risk tolerance. Conservative HNWIs may prefer a 50/50 stock-bond portfolio split, while more aggressive investors might allocate 80% or more to equities [3].

As you near retirement, it's generally more prudent to reduce portfolio risk by shifting more assets into fixed income and cash. However, holding at least some equities is still recommended to hedge inflation and longevity risk [4]. Target date funds that automatically adjust asset allocations can be useful for HNWIs wanting simpler investing.

Tax-Efficient Investing

Placing income generating assets and tax-inefficient investments into retirement accounts may help limit tax drag on HNWI portfolios [5]. Some options like municipal bonds and equity index ETFs can provide tax-advantaged income even in taxable accounts.

Consulting a financial advisor and tax professional allows customizing your asset location strategy.

Impact Investing

Impact investing aligns an HNWI's financial objectives with positive social or environmental change [6]. Areas like renewable energy, sustainable agriculture, microfinance, and affordable housing represent potential impact investment opportunities.

Portfolios can target market-rate returns or accept concessionary returns for deeper impact. Either way, ensuring rigorous due diligence and risk management is vital. Impact measurement methodologies also help HNWIs track investment outcomes and progress towards impact goals [7].

Risk Management

With substantial wealth comes responsibility for comprehensive risk management across both investment portfolios and overall balance sheets. Some key risks that HNWIs must address include [8]:

  • Market risk - Equity market declines can quickly erase millions in portfolio value. Mitigate by diversifying across asset classes and implementing hedges like options.
  • Inflation risk - Over long-time periods inflation can severely erode purchasing power. Include real assets like property, commodities, and  Treasury Inflation-Protected Securities (“TIPS”) across portfolios.
  • Currency risk - Fluctuating floating exchange (“FX”) rates impact offshore investments and oversea spending power. Manage currency exposures through hedging instruments.
  • Credit risk - A bond issuer defaulting can mean lost principal. Screen issuer balance sheets rigorously, especially with higher yielding debt.
  • Longevity risk - The risk of outliving your assets in retirement. Mitigate by using conservative return assumptions and holding growth assets.

Ongoing balance sheet monitoring that stress-tests your finances using various recession and crisis scenarios is prudent. This allows adjusting investments and planning ahead of downturns.

Tax Efficiency

Tax minimization strategies can help HNWIs preserve more portfolio value over the long-run [9]. Some options include:

  • Holding assets with preferential tax treatment in taxable accounts e.g. municipal bonds, equity index ETFs.
  • Placing highly taxed assets like bonds, REITs, high dividend stocks into retirement accounts.
  • Harvesting investment losses to offset realized capital gains.
  • Funding trusts and gifting to spread wealth to family members in lower tax brackets.
  • Making charitable donations using appreciated shares rather than cash.
  • Working with tax professionals to identify all available credits, deductions, and loopholes.

Roth retirement accounts can provide tax-free growth, while deferred accounts like 401(k)s allow tax-deferred compounding that helps build long-term wealth.


Diversifying within and across asset classes helps HNWIs avoid overexposure to any single investment [10]. Allocating across different:

  • Stock sectors (technology, financials, healthcare etc.)
  • Market cap sizes (large, mid, small cap stocks)
  • Investment styles (growth, value)
  • Countries and regions (US, international developed, emerging markets)
  • Bonds (government, corporate, high yield)
  • Alternative assets (private equity, hedge funds, venture capital)

Avoiding concentration in any one stock or sector limits downside risk. Rebalancing periodically maintains target diversification levels as market movements skew allocations over time.


Customizing investment strategies to suit your specific investment objectives, risk tolerance, time horizon and liquidity needs is crucial for HNWIs. As circumstances change, portfolios should adapt to align with evolving investor requirements across the wealth accumulation, preservation and distribution phases. Partnering with professional advisors can provide guidance when developing and executing personalized investment plans.