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Staying the course, carefully allocating assets and diversifying may not seem as glamorous as investing in a hot stock and scoring a double-digit return, but they're critical to growing wealth.

Lasting wealth is built by crafting a solid, thoughtful plan that can weather market volatility.


Throughout history, investors have looked for the quickest, easiest path toward prosperity. But lasting wealth isn’t built in the fast lane. It’s the result of slow and steady portfolio growth over the long term through diversifying, rebalancing, harvesting losses, assessing risk and sizing up more distant opportunities. It takes continual vigilance around spending, tax planning, estate planning and other wealth management activities.


“This is why we call our approach ‘Active Wealth,’” says Ridge Powell, managing director and wealth advisor for BNY Mellon Wealth Management’s Family Wealth Investment Advisor group. “It involves constantly planning and monitoring to take advantage of changing situations—in the markets, regulations or personal circumstances—and coordinating with multiple advisors around taxes and estate planning.”


The impact of the Tax Cuts and Jobs Act, passed in December of 2017, demonstrates the value of the Active Wealth approach, Powell says. The massive tax reform required major revisions to estate plans, income tax strategies, small business structures and other vital aspects of financial plans for many months after the law went into effect as the IRS issued revisions and clarifications.


Even on the investment side of the equation, Powell says, clients might be surprised at what percentage of their long-term returns comes down to a persistent, workmanlike attention to detail. While getting the big calls right with regard to business and economic trends is certainly important, perhaps as much of the ultimate growth of a portfolio comes from more systematic drivers, like maintaining proper diversification among stocks, sectors, investment styles and asset classes, or adhering to disciplined rebalancing back to strategic weights.


Powell uses an extreme example to make his point. “Think about some of the so-called ‘safe’ blue chip stocks that dominated portfolios 30 years ago,” he says. “Thirty years later, anyone who held on to a dozen or so of those names as part of a buy-and-hold strategy could be looking at a significant loss in relative value. Rebalancing helps limit your exposure to risk that often only seems obvious in hindsight. It also keeps you from holding positions that have increased in price and encourages you to buy a cheaper asset that has more room to appreciate. Repeat that on a regular basis and, as markets move up, that’s how you avoid losses and little by little really see an accumulation of wealth.”


An art and a science

A sound wealth plan requires hard data on investment fundamentals, compounding return trajectories, expenses and tax law. But toss in the stress of a sharp market decline, a job loss or a divorce, and that’s when a good rapport and an open line of communication with a trusted wealth advisor become crucial components in long-term success. 


Powell says that, back at the end of 2018, when the S&P 500 posted its worst December decline since 1931, a client asked to sell off his stock positions. “I recommended that the client take a step back and think it over. First of all, if you want to harvest any losses to offset gains, next year would be a better time for you from a tax standpoint. Then I provided some insight into why what we were seeing in the markets at the time seemed like an overreaction and why it made sense to stay invested.”


In such situations, Powell says, it also never hurts to revisit the stark numbers: Over the past 40 years if, during bouts of volatility, you had waited for things to settle down and missed the stock market’s 10 best trading days, your cumulative return today would be 52% lower than if you had stayed invested.


The client resisted the impulse to sell and was thankful later, Powell says, noting that talking through the situation prompted further planning to gift appreciated stock to charity to fulfill philanthropic goals.


This, too, shall pass


Short-term thinking isn’t only a problem during times of market volatility. At the opposite extreme, some clients stick to stock positions that expose them to unwise levels of risk. Investors who built their own companies are prone to this because they understand their own business better than any other, Powell says.


But single-stock risk can have disastrous consequences if the concentrated position declines. “Entrepreneurs tend to view diversification as giving up control, and it often runs counter to what it means to them to grow their wealth,” Powell says.


Sometimes the answer is a compromise, such as an agreement to allocate an overweight—but fixed—portion of a portfolio to a company stock, even if it means continually paring it back to rebalance while diversifying the rest.


Staying the course, carefully allocating assets and diversifying—these steps may not seem glamorous. But they’re critical to growing wealth and are far more likely to lead you down a successful path.

This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. The Bank of New York Mellon, Hong Kong branch is an authorized institution within the meaning of the Banking Ordinance (Cap.155 of the Laws of Hong Kong) and a registered institution (CE No. AIG365) under the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong) carrying on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities. The services and products it provides are available only to “professional investors" as defined in the Securities and Futures ordinance of Hong Kong. The Bank of New York Mellon, DIFC Branch (the “Authorized Firm") is communicating these materials on behalf of The Bank of New York Mellon. The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation. This material is intended for Professional Clients only and no other person should act upon it. The Authorized Firm is regulated by the Dubai Financial Services Authority and is located at Dubai International Financial Centre, The Exchange Building 5 North, Level 6, Room 601, P.O. Box 506723, Dubai, UAE. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorized by the Prudential Regulation Authority. The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon is incorporated with limited liability in the State of New York, USA. Head Office: 240 Greenwich Street, New York, NY, 10286, USA. In the U.K. a number of the services associated with BNY Mellon Wealth Management's Family Office Services– International are provided through The Bank of New York Mellon, London Branch, One Canada Square, London, E14 5AL. The London Branch is registered in England and Wales with FC No. 005522 and BR000818. Investment management services are offered through BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, One Canada Square, London E1C 5AL, which is registered in England No. 1118580 and is authorized and regulated by the Financial Conduct Authority. Offshore trust and administration services are through BNY Mellon Trust Company (Cayman) Ltd. This document is issued in the U.K. by The Bank of New York Mellon. In the United States the information provided within this document is for use by professional investors. This material is a financial promotion in the UK and EMEA. This material, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such. BNY Mellon Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland BNY Mellon Investment Servicing (International) Limited is regulated by the Central Bank of Ireland. BNY Mellon Wealth Management, Advisory Services, Inc. is registered as a portfolio manager and exempt market dealer in each province of Canada, and is registered as an investment fund manager in Ontario, Quebec, and New Foundland & Labrador. Its principal regulator is the Ontario Securities Commission and is subject to Canadian and provincial laws. BNY Mellon, National Association is not licensed to conduct investment business by the Bermuda Monetary Authority (the “BMA") and the BMA does not accept responsibility for the accuracy or correctness of any of the statements made or advice expressed herein. BNY Mellon is not licensed to conduct investment business by the Bermuda Monetary Authority (the “BMA") and the BMA does not accept any responsibility for the accuracy or correctness of any of the statements made or advice expressed herein. Trademarks and logos belong to their respective owners. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ©2020 The Bank of New York Mellon Corporation. All rights reserved.