The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Moving from the Current Strategy to the New Strategy

When a family has just experienced a major liquidity event and is mainly invested in cash, or when a family has engaged a new advisor who has recommended a different strategy than what the family has been using, the question will arise: How do we move from our current position to the new strategy?

The answer depends mainly on market valuations at the time the new strategy has been selected. If it's 1999 and the equity markets—especially the growth and tech sectors—are selling at all-time highs, it would be very foolish to move quickly to a fully invested position in stocks. Sure, the markets could continue to run for a while, and if the family isn't fully invested they won't fully participate in the run-up.

But this is a minor problem—after all, the family is already rich. On the other hand, if the family jumps heavily into extremely rich equity markets, it will be vulnerable to a price collapse—and such a collapse did in fact occur in early 2000. For a family that has spent an entire lifetime—or several lifetimes—building its wealth, losing a substantial chunk of it right out of the box is a devastating event.

Instead, the family will be better advised to move slowly into the equity markets, probably not moving above its minimum equity targets and also focusing on undervalued sectors like value stocks.

On the other hand, if it's mid-1974 or early 2009 and the markets are in the tank, moving to a fully invested equity position ...