Portfolio performance vs. building wealth

Portfolio performance is not the same as building wealth. The former helps facilitate the latter, true. But if you engage in the first and neglect the second you will likely fail to adequately preserve and enlarge what you’ve taken pains to accumulate.

  1. Today’s investment environment (the portfolio performance element) is one where exceptional returns are becoming harder and harder to secure.
  2. Which means that comprehensive wealth management (the preserving what you’ve got element) is becoming increasingly necessary.

Squeezing every drop of financial advantage from what you’ve built has become at least as important as growing what you might potentially acquire.

And that’s why portfolio performance is not the same as wealth building.

A diversified approach

If you click on the Our Team section of our website, you will find the biography of our founder Nader Hamid. It reads, in part:

“Nader saw an opportunity to instead focus on helping his clients’ reach their financial goals by using a diversified approach. Using highly personalized, holistic wealth planning strategies combined with a conservative game plan, Nader brought a fresh, long-term perspective to clients…”

In the Our Services section of our website we sum up our position succinctly: “If wealth management is a puzzle of many pieces, then investment is only one. We put those pieces together. That’s total wealth management.”

Total wealth management explained

It is vitally important to understand that total wealth management, the principle upon which our practice was founded and currently operates with such success, is about much more than day-to-day financial planning. It involves such things as:

  • Making wise choices relating to the use of debt, setting up education savings plans, tax-efficiency, estate planning and ensuring your insurance needs are taken care of.
    Measuring your performance against your true benchmark – your goals.
  • Making corrections along the way as life or market and economic forces intervene – including managing severe life disruptions.
  • Helping you understand how to budget and how much you need to save to meet your future spending and consumption needs.

This may seem all very bread and butter, which it is. But it’s all very necessary, and it’s foundational to wealth building. Here’s why.

The S&P 500

The S&P 500 index comprises about 500 of America’s largest publicly traded companies. It is considered the benchmark measure for annual investment returns. When investors refer to the market, they typically mean the S&P 500.

The S&P 500 index, which was established approximately 90 years ago, has delivered an average annualized return of 9.8%1. The S&P 500 has – inevitably – had its ups and downs, but its long-term trajectory is up.

But that long-term average is, at best, notional. Investors lose purchasing power of 2% to 3% every year due to inflation, which puts the S&P 500s average inflation-adjusted return at about 7% to 8% annually.

And if you as an investor pursue a practice that we emphatically do not recommend – frequent trading – you can expect to earn less, sometimes much less, as poorly timed trades can deplete your bankroll.

Conclusion: Short term pain for long-term gain

Total Wealth Management Group believes in the necessary alignment of portfolio performance (making money) and building wealth (enlarging and protecting the money you’ve made).

This is not an either/or dichotomy. Both are foundational to long term asset accumulation and represent the best possible protection against market volatility and unexpected reversals. That’s why we embrace both disciplines.

The motivational slogan of another senior member of our team – Jean Hénault– (CIM®, Portfolio Manager, Senior Investment Advisor, Executive Director – Private Client Group) is “Short term pain for long-term gain…”

And we are also inspired by Warren Buffett’s resolutely level headed adage2 “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1.”

Wealth accumulation is not a sprint, it’s a marathon.


1https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
2https://www.ruleoneinvesting.com/blog/how-to-invest/warren-buffett-quotes-on-investing-success/

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Our clients and their families typically have a net worth of $2M or more. If you have an amount under the minimum, we still invite you to get in touch with us to discuss your options.