One of the best plans to take from the financial playbook of the Super Rich – those with a net worth of $500 million or more – is to work with a wealth advisor in Nashville to help live an amazing life of significance. 

But, as the Super Rich know, as your circumstances change or the world around you changes, the solutions you have in place may no longer be optimal for your needs. “Life happens,” as they say, and financial strategies ideal for you a decade ago might need revision.

Regularly assess whether the financial advice you are receiving and the financial solutions you are provided are aligned with your financial goals and risk tolerance. 

That’s where a technique known as stress-testing can make a big difference.

It’s All in the Details

A financial stress-test can help you verify whether the wealth management solutions you are using are not only in alignment with your goals and objectives but should also incorporate best practices to optimize your wealth. 

Stress-testing systematically determines how your wealth management solutions are likely to hold up under different scenarios and ultimately deliver the results you expect.

One big reason your wealth planning efforts may need fine-tuning (or more) is that most people do piecemeal planning. That means they address one concern without considering their larger situation. Then, two years later, they address another consideration without factoring in other aspects of their financial lives.

Often, there’s little to no collaboration among the various professionals helping them and little to no coordination among the various financial solutions or strategies they implement. This disjointed approach can lead to a plan not fully optimized for success. 

Stress-testing allows you to look at your situation holistically to see whether your goals and objectives are being addressed and whether you are using the most appropriate, cost-effective, and up-to-date strategies and solutions based on your needs and goals.

The good news: The overall trend of democratization in financial services, which has brought once-exclusive solutions to more investors, is also bringing stress-testing to a larger audience.

Understanding How a Stress-Test Works

A financial stress-test typically includes the following steps:

  1. The first step is defining and developing scenarios representing potential adverse economic conditions. These scenarios can vary in severity, including economic downturns, market crashes, or unexpected financial shocks.
  2. From there, your wealth advisor will collect relevant financial data, including income, expenses, assets, liabilities, and investment portfolios, which serve as the foundation for the stress-test.
  3. Next, sophisticated modeling techniques project how your finances would be affected under each scenario. This involves estimating changes in your income, investment values, and debt levels.
  4. A sensitivity analysis is also conducted to assess the sensitivity of your financial position to different variables and assumptions. This helps to identify areas where you may be more vulnerable.
  5. These scenarios are applied to the financial model to simulate the impact on your finances. This step assesses how well you can withstand adverse conditions.
  6. Based on the stress-test results, your Nashville wealth advisor can provide recommendations for improving resilience, such as adjusting investment strategies, reducing debt, or building emergency funds.

It’s important to remember that stress-tests are not one-time events. They should be periodically conducted and reviewed for changing circumstances and financial goals. Adjustments to financial strategies can be made accordingly.

Three Action Steps

A good time to consider a stress-test on your finances is whenever you are not sure you are using the best available wealth management solutions and, as a result, you are concerned that:

  • There may be errors in your wealth plan.
  • Opportunities to improve your situation may need to be added to your plan.

By stress-testing your plan or specific aspects, you can confirm that you are on target or identify corrections that will put you on the right track toward the results you most want to pursue.

  1. Seek an experienced wealth advisor who explains the stress-testing process and its value to you. It’s a good sign when a financial professional can explain stress-testing, the value it can provide you with, and the reasons for doing a stress-test in the first place. 
  2. Stress-testing is not about being sold services or products, nor will it always result in making any changes to the current wealth plan. Instead, think of stress- testing more like an annual physical checkup. You may not have any medical concerns going into the appointment, but you show up to ensure that any unidentified or hidden problems are uncovered. That way, you can take steps before the problems become serious.
  3. Work with a wealth advisor in Nashville who is focused on the human element. Stress-testing is designed to help you see if that strategy is still best suited for you based on your needs, wants, and preferences. Therefore, a stress-test must consider important personal and even emotional traits to be effective. This human element is vital in ensuring you are getting the desired wealth management results and that those results are within your established parameters.
  4. Work with a professional who is highly technically proficient. Although the human element takes center stage, it won’t do much good if the person doing the stress-test can’t expertly evaluate your current wealth solutions or ones that potentially could be a good fit for you.

A highly proficient professional can evaluate sophisticated and complex wealth management solutions to see if they work, are working as expected, and are not in any way skirting laws or regulations. He or she will also be knowledgeable about alternative strategies and products and be able to bring in specialists, if needed, to evaluate current strategies and potential alternatives that may be more appropriate for your needs.

Connect with us to learn more about our stress-testing services.

ACKNOWLEDGMENT: This article was published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2023 by AES Nation, LLC.

This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks, and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Mitch Silberman is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker/

dealer and registered investment adviser. Advisory Services offered through Silberman Wealth Strategies, Inc. Cetera is under separate ownership from any other named entity. Mitch Silberman and Silberman Wealth Strategies, Inc. are not affiliated with AES Nation, LLC. AES Nation, LLC is the creator and publisher of the VFO Inner Circle Flash Report.