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How efficient is the balance sheet of the average high net worth individual?

- July 2, 2016

Michael S. Schwartz, CFP®, AEP®

Chief Executive Officer
Wealth Management Advisor

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The proper management of one’s balance sheet can be challenging for even the most financially astute high net worth investors. A personal balance sheet is a simple tool in which all assets (left side) and liabilities (right side) are listed. However, high net worth individuals tend to focus on the left side of the balance sheet and often pay less attention to their present and future liabilities.

The current interest-rate environment presents a compelling opportunity to review existing liabilities in the context of asset allocation and investment goals. As a financial advisor, I consistently research and provide insight and opine on some of the following items:

• Unsecured loans—credit cards, personal loans;

• Mortgages and home equity line of credit loans—residential and commercial real estate;

• Securities-based loans and advisory fees—hard and soft costs;

• Premium expenses—life, disability, long-term care and homeowners insurance. These items make up the right side of the balance sheet and indirectly affect the left side.

My goal as a financial advisor is to help my clients attain additional returns on their balance sheet without taking additional equity risk premium in the markets.

When speaking with clients, one issue that often flies under the radar of even vigilant investors’ attention is inflation. Inflation is a major factor affecting long-term asset value, and high net worth investors face a few key challenges planning for it.

Odds are that you have not heard of CLEWI—the Cost of Living Extremely Well Index, launched by Forbes in 1982. The index is based on the selection of 40 goods and services customarily reserved for very wealthy customers.

The index shows that high net worth individuals particularly want to send their children to preparatory schools and a college like Harvard University; go to the opera on a consistent basis; and purchase a designer handbag(s) for themselves or their significant other.

Historically, the basket of goods tracked by the CLEWI has exceeded inflation by an average of 2.5 percentage points annually.1 So what does that tell you? Well, it simply highlights the fact that the cost of luxury goods and services is outpacing inflation.

A sound financial plan accounts for, forecasts and models inflation along with, these escalating costs. That is why it is crucial to work with a qualified financial advisor and not just an advisor who manages your money. Even the wealthiest can lose significant asset value over time if their liabilities are not managed properly and they are not following and updating a comprehensive financial plan.

Aligning with the right financial advisor is key to keeping these often-overlooked items in check. He or she will be able to not only look at things on a granular level but also to analyze things holistically on a macro level.

In short: Just because people make a lot of money does not mean that they can afford to overlook the right side of the balance sheet. l

1 “Want To Live The 1% Life? Here’s How Much It Costs.” Forbes. 2015.

Michael Schwartz was a partner of Pioneer Financial at Northwestern Mutual Park Avenue at the time of this publication. Since September 15, 2017, Michael Schwartz has served as the CEO of Magnus Financial Group LLC, an SEC registered investment adviser that maintains a principal place of business in New York, NY. Magnus Financial Group provides personalized services to a diverse range of clients including existing and emerging high net worth individuals, families and closely held businesses. The firm utilizes offensive and defensive financial planning approaches, encompassing asset management, risk management, tax planning, retirement income distribution and estate preservation planning. Michael Schwartz was named by the Financial Times to the Top 400 Financial Adviser List in 2017.


Guest Contributors
Michael S. Schwartz, Ron Deutsch, Drew J. Collins, Sharon Hayut, Michael Tanney, Paul F. Hoerrner., Jr. CFP, J. Scott Kephart
at Magnus Financial Group LLC. | | 800.339.1367


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Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.