One family, four generations. One wealth manager, four investment strategies

The Brown Family
The Brown Family

A Baby boomer, one person from Generation X, a Millennial and a new born (who knows yet what this generation will be called?). One family, four investor profiles. Four strategies.

This rare situation – but likely to become a regular occurrence as people live longer – at private client wealth manager Brenthurst Wealth has posed interesting challenges to the advisory team and an unique opportunity to utilise four different strategies for one family.

“Our team is excited about this project as it allows us to use different portfolios for the different risk profiles and investment horizons. This is the first such ‘case’ in our company’s history but we expect more as our older clients live longer,” says Magnus Heystek, director and investment strategist at Brenthurst.

The four clients are a great grandmother, grandmother, her daughter (grandchild of the first client) and now a great grandchild.

“What is interesting is the different attitudes towards investment and also the varying requirements regarding investment advice and service model. The older generation want more security and the ‘safe’ options and regular personal contact or interaction, while the younger client is, of course, more open to risk and prefer digital contact and on-line solutions,” Heystek said.

Each generation requires a different strategy and investment selection, based on each client’s age, risk profile and investment horizon:

The Great grandmother, mid 80s:

Conservative, low risk approach.

The emphasis is on capital preservation and ensuring that growth at the very least keeps up with inflation. The asset class selection is likely to include higher exposure to financial instruments such as bonds, as well as cash, but will also include – though somewhat conservative – some exposure to, or no equities at all (with income funds).

Conservative investors generally have a low to moderate risk tolerance. Those who have a low risk tolerance are often extremely uncomfortable with the stock market and do not want to see any capital losses on their investments at any time, irrespective of the fact that they could sacrifice potential returns. Capital preservation and current income are the main objectives of the conservative investor and the preferred investment instruments are cash (money market) and fixed-income options such as bonds with very little exposure to shares.

The Grandmother, age early 60s:

Medium risk and retirement planning.

A split between a balanced/conservative approach would be followed with 60% invested in a moderate portfolio and 40% into a more conservative portfolio.

With regards to a balanced portfolio, which is the investment strategy most applied for Brenthurst clients, there is a choice between two general types of strategies: (1) a balanced portfolio with low to moderate risk or (2) a balanced portfolio with moderate to high risk. In either case, the important aspects to consider are diversification and asset allocation. Depending on the clients’ needs and objectives (capital preservation or capital growth) a higher allocation of certain instruments is applied in order to match those needs. For example: if a client has a bigger emphasis on capital growth, but still requires an appropriate level of capital preservation, this client will require a balanced investment strategy with moderate to high risk. If the emphasis is on capital preservation, then vice versa.

The Mother; early 30s:

High risk and wealth building.

An aggressive approach can be taken with someone is still quite young in financial terms. Depending on the investment horizon, this type of investor has much broader range of ‘risk’ that can be taken. Especially when investing for retirement, this category of investor could take as much risk as possible for any RA’s or preservation funds.

An aggressive investment strategy is one that attempts to maximize returns by taking a relatively higher degree of risk. There is a larger emphasis on capital appreciation as a primary investment objective, rather than income or safety of the initial capital. Such a strategy would therefore have an asset allocation with a substantial weighting in stocks, and a much smaller allocation to fixed income and cash. Aggressive investment strategies are especially suitable for young adults because their lengthy investment horizon enables them to ride out market fluctuations better than investors with a short investment horizon.

The great grandchild, a newborn:

High risk and capital growth.

Very sector specific fund allocations; high equity. What is meant by sector specific funds is that there is no general diversification of business sectors within the funds; all capital is invested in that specific industry. This type of investor has their entire life ahead of them. Very aggressive financial instruments can be used, high equity exposure, and the one element that is working in their favour is time.  The higher the risk, the higher the (potential) of the reward. The young age also works in the investors favour as the investment has much more time to recover from any economic downturns and also offers compounding, very effective over the super long term.

PLEASE NOTE: Brenthurst develops investment plans for all clients based on the specific situation and requirements they have. No portfolio compilation is the same as clients may, for instance, be of the same age but have a completely different set of investment goals. For any investment decisions it is always advisable to consult with your adviser to discuss your personal situation.

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