The modern affluent's approach to wealth
This article was written by Natalie Choy and first published in The Business Times on 6 Oct 2021.
It comes as no surprise that today's young, wealthy millennials want to be more hands-on with safeguarding their wealth.
Their money is, after all, hard earned - a substantial chunk of their amassed wealth often comes from having a steady career, says DBS Treasures Singapore head Steven Ong, adding that the "modern affluent" are generally careful and considered with their decisions.
Being relatively new to their current stage of wealth, they are in the process of learning more about investing and wealth management.
There is a natural inclination to be more hands-on and to drive the direction of how their assets are managed, says Mr Ong.
The ease of access to information in the digital age further helps the modern affluent take a more proactive approach to doing research before consulting their wealth advisers.
"Their inquisitiveness is indicative of a desire to gain a wider understanding of and access to more complex investment solutions that previously were not available to them, and could be key in making their wealth work harder for them," says Mr Ong.
Sitting at the wealth accumulation stage, the modern affluent are prepared to stomach higher risks and be decisive in taking advantage of market opportunities.
They have a longer time horizon for investing and, as a result, more avenues to take on more aggressive strategies or trades.
For example, Covid-induced sell-offs in global equity markets last year saw many investors bump up their exposure to cash equities and equity-linked structured products.
Understandably, this was an opportunity that many took to either start building their equity portfolios or increase their exposure to the asset class. Those who timed the market well might be sitting on good gains in their portfolios now, says Mr Ong.
But he cautions that a good streak can cause investors to trust their own trading abilities too much, which can backfire in time, especially if sufficient research has not been done.
"Timing the market has, more than often, been very difficult to do, even for the experts. Adopting such a trading mentality to investing can have unintended consequences, one of which is overconfidence - a common behavioural bias," he warns.
Investors keen on exploring trading opportunities should set aside only a small portion of their portfolio for this purpose.
The bulk of their portfolio should be focused on "true" investing - centered on taking a slow and steady approach with a long-term perspective, so as to generate stable income through dividends and build wealth through capital appreciation.
This approach focuses on company and sector fundamentals that are positioned to perform well in the long run, says Mr Ong.
Investors can work with their wealth advisers to identify potential winners in a post-Covid and fast digitalising world, and capture growth possibilities through secular-themed investments.
While the modern affluent are generally self-directed, they still value the collaborative role that wealth advisers play in helping them review their portfolios; understand the risks and benefits of investing in more complex products and the role these can play in their portfolios; and how best to achieve their financial goals.
"This is particularly beneficial to clients who are new to this stage of wealth or unfamiliar with certain investments, and aren't sure how to enhance their existing portfolios," says Mr Ong.
At DBS Treasures - which caters to Accredited Investors with investible assets of S$350,000 - its modern affluent clients generally adopt a "core-satellite" approach to portfolio construction, designed according to individual financial goals, personal situation, preferences, risk tolerance and time horizons.
The "core" is designed to be global and multi-asset to reduce overall volatility, and is long-term in nature. This is complemented by the "satellite" component, which enables investors to capture opportunistic plays in the current market environment to generate higher-than-market averages in the short to medium term, says Mr Ong.
As a starting point, it is key to first identify one's financial goals - such as having sufficient funds for a comfortable retirement - and risk appetite.
At DBS, financial and suitability profiling of a client is conducted by a relationship manager before account opening or onboarding.
This comes as financial goal setting takes into consideration whether the investments are intended for capital growth, wealth preservation, a need for regular income generation, or other requirements. The required return from the investment should be factored in as well, says Mr Ong.
Meanwhile, risk appetite measures both the ability and willingness to take risks. According to DBS, a higher proportion of the modern affluent's assets are in equity markets through direct investments in cash equities, equity-linked structured products and some funds, compared to the older generation of investors.
All that said, holistic wealth management involves much more than just growing your wealth.
The modern affluent should also have adequate insurance protection; getting covered at a younger age ensures insurability, affordability of premiums, and helps cushion the cost of treatment without having to dig into your savings, says Mr Ong.
Policies to consider include long-term care and critical illness plans, which can help shield your loved ones from the risk of a temporary or permanent loss of income.
Individuals should also look into setting up a retirement plan early to enjoy the benefits of compounding.
"Components of this plan can include insurance products geared to taking care of the different needs and phases of your life, as well as solutions such as decumulation product offerings, designed to convert assets into income streams to fund retirement," Mr Ong notes.
Once these basics are in place, the modern affluent can look into establishing mechanisms for wealth transfers and legacy planning.
Wills, life insurance policies and trusts, among others, will be important in securing the financial well-being of those you leave behind, says Mr Ong.
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