In the world of high-net-worth investing, a one-size-fits-all approach simply doesn’t cut it. High-net-worth individuals (HNIs) have different financial goals, diverse risk appetites, and unique life situations that demand a more tailored strategy. Personalized Portfolio Structuring within Portfolio Management Services (PMS) offers a bespoke approach, ensuring that investments align with an individual’s long-term financial aspirations and risk tolerance.

In this blog, we will explore how personalized portfolio structuring can enhance PMS performance and why this approach is crucial for HNIs who seek not only to grow their wealth but to protect and sustain it over time. But before we go there, let’s find out what is risk profile and how it is calculated for PMS investors.

HOW THE RISK PROFILE GETS COMPUTED?

If we have to define it in a line then , a risk profile is generally calculated by assessing an individual’s ability and willingness to take on risk in their investments. This involves both quantitative and qualitative factors.

1. Investor’s Risk Tolerance

This involves understanding how comfortable the investor is with taking risks. It’s often assessed through a risk tolerance questionnaire, covering Short-Long-term goals, Emotional Response to Market Volatility (e.g., would they sell, hold, or buy more during a downturn?), Past Investment Experience & Financial Knowledge.

2. Risk Capacity

Risk capacity measures an investor’s financial ability to take on risk. It is based on the following factors like Time Horizon in terms of Experimental Age of Investors, Income and Savings, Liquidity Needs, Dependents and Family Responsibilities.

3. Risk Required

This evaluates the level of risk needed to achieve the investor’s desired financial goals. If an investor wants high returns, they may need to accept a higher level of risk. This is usually assessed through:

• Return Expectations: Estimating the required rate of return to meet specific financial objectives.

• Investment Goals: Matching the risk level to long-term goals like retirement, buying a house, or education funding.

4. Quantitative Analysis:

To further solidify the risk profile, quantitative measures are applied using financial data:

• Standard Deviation: Measures the volatility of an asset or portfolio, showing how much returns fluctuate from the average.

• Value at Risk (VaR): A statistical technique that estimates the potential loss of an investment or portfolio over a specified time frame and confidence level.

• Beta: Measures the sensitivity of a portfolio’s returns to overall market movements. A beta greater than 1 indicates higher volatility than the market.

5. Risk Profiling Tools and Models

Financial advisors and firms use risk profiling models and algorithms to classify an investor into categories like conservative, moderate, or aggressive. These tools often incorporate Monte Carlo Simulations & Stress Testing to see how a portfolio performs under extreme market conditions, such as during financial crises and how will it impact the investors.

After these five factor computation, final risk profile is calculated and investors are categeorised in these buckets:

• Conservative: Low risk tolerance and capacity, focus on capital preservation.

• Moderate: Balanced approach between risk and return.

• Aggressive: High risk tolerance, capacity, and return expectations.

Based upon these risk profiles whether a PMS investor is conservative, moderate or aggressive, the personalisation happens at every level of the portfolios to incorporate and reflect the true essence of the above stated five factors. This is how it is done –

1. Aligning Investments with Personal Financial Goals

By keeping individual financial goals at the core of the investment strategy, personalized portfolio structuring paves the ladder for the portfolios to climb when the market is bullish and to systematically step down when bear gets on the nerves. Unlike traditional investment methods that follow fixed and generalized asset allocation models, PMS focuses on understanding an investor’s specific objectives—whether it’s capital preservation, aggressive growth, or steady income generation.

For example, an HNI who is nearing retirement might prefer a conservative, income-focused strategy that ensures their wealth lasts through their later years for their future and their future generations. On the other hand, a younger investor looking to build substantial wealth over the next two decades to fuel his or her aspirations might have a higher risk tolerance, allowing for a portfolio heavily skewed towards high-growth sectors. This level of portfolio adaptations for HNIs means the portfolio not only meets current needs but evolves with the investor’s changing life stages.

2. Tailoring Asset Allocation Based on Risk Appetite

Risk appetite plays a pivotal role in any investment strategy, and HNIs often have a range of comfort and reserve levels when it comes to market volatility. Personalized portfolio structuring within PMS takes into account the individual’s risk tolerance, adjusting the asset allocation accordingly.

For a more risk-averse HNI, a well-structured PMS portfolio might lean towards safer instruments like bonds or blue-chip stocks, which offer stability and steady returns. Conversely, a risk-tolerant investor might have a portfolio composed of equities, alternative investments, or emerging markets, providing the potential for higher returns.

This dynamic risk management ensures that portfolios are optimized not only for returns but also for peace of mind, giving investors confidence that their portfolios are built to weather market volatility while pursuing growth.

3. Continuous Performance Optimization Through Active Management

Personalized portfolio structuring doesn’t stop at the initial setup. One of the standout features of PMS is its active management approach, where portfolio managers continually monitor and adjust portfolios to stay aligned with the investor’s goals and changing market conditions.

Through this proactive management, underperforming assets are swiftly replaced, and emerging market opportunities are seized, ensuring that the portfolio remains resilient and adaptive. This flexibility allows HNIs to maximize returns over time, without the need for them to constantly track market trends or economic shifts. The personalized aspect of PMS ensures that these changes are always in line with the investor’s profile, risk tolerance, and financial objectives.

4. Holistic Wealth Management for Long-Term Success

Beyond asset allocation and active management, personalized portfolio structuring in PMS also involves comprehensive wealth management, incorporating tax planning, estate management, and intergenerational wealth transfer strategies.

PMS managers for HNIs often act as financial partners, ensuring that every element of the portfolio aligns with the investor’s broader financial plan. This means that beyond just returns, PMS ensures long-term wealth sustainability, protecting the investor’s legacy and ensuring that financial goals are met well into the future.

The Bonanza PMS Advantage: Personalized for Superior Performance

At Bonanza Portfolio Management Services, we take pride in offering a truly personalized PMS experience for our HNI clients. Our team of expert portfolio managers collaborates closely with investors to tailor portfolios that are in complete alignment with their financial goals, risk appetite, and market outlook. We believe that personalized portfolio structuring is the key to unlocking superior investment performance, and our results speak for themselves.

With absolute returns of 1000%, Bonanza PMS offers the perfect blend of customization, risk management, and long-term growth for HNIs looking to elevate their wealth management strategy. Let us help you craft a portfolio that reflects your financial future—tailored, optimized, and designed for success.