Growth investments and dealing with risk

It is usual to consider growth investments (or to be more accurate, the investments in unlisted companies) as a risk that is better avoided. I have already discussed previously with the risk associated with specific tax products. Today I will consider the risk in the context of wealth management.

Typically, a balanced wealth management strategy must include three important investment categories: short term investments that are very liquid and risk free, medium term investments which are aimed to generate income and growth investments (from medium to long term) for wealth creation.

The first investments are about immediate needs. These aassets cannot be locked nor can they be at risk. They consist of daily operational needs and reserves in case of an emergency.

The second type of investments are intended to provide a complementary income (e.g. to supplement retirement). They are either structured in advance (When one is still young) with more or less complex structuring (the rent of professional furnishing or LMP is a good example) or immediately structured (e.g. simple real estate rent). These investments are often wrongly considered as being risk free. As for each investment, the risk is exclusively due to a lack of profound knowledge of the product and not to the nature of the product.

The third investments are for creating a lasting asset (beyond a generation in general). They consist of periodic investments. The inherent risk of these investments is the changes in the markets that support them. It is therefore essential to comprehend the growth strategies of these investment or to rely on recognized experts in the field .

However, there is a simple way to deal with the risk from growth investments. It consists of properly evaluating the share of these investments and determining (taking into account any tax advantages) the required performance of the remaining assets in order to deal with the potential risk of losing the growth investments.


Thus, one can show that with 10% of assets in growth investments, the associated risk is coverred by the performance of the remaining assets for just 2.5% per year. If this represents an acceptable performance, it is not out of reach of a good wealth manager, even in the current context.

So, do not overlook the « third part » of your asset, because that is the one and only part that will ensure the growth of your wealth for generations to come. It's called legacy!

By Chris Cantell