High-Net-Worth Families

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Mutual funds can provide convenient diversification, particularly for investors who are beginning to build a portfolio. However, for high-net-worth individuals and families, they may not provide the tax control, cost transparency, customization, and investment flexibility needed for more sophisticated wealth management.

At Di Bello Financial, we build portfolios in-house using carefully selected individual stocks, individual bonds, and exchange-traded funds rather than relying primarily on mutual funds. These securities are arranged within a diversified, risk-based portfolio designed around each client’s objectives, time horizon, income needs, tax circumstances, and tolerance for market volatility.

This approach gives us greater control over what clients own, what they pay, when securities are purchased or sold, and how investment decisions are coordinated with their broader financial and tax strategies.

When an investor directly owns an individual stock or bond, the security itself does not charge an annual internal management fee or expense ratio. The investor owns the shares or bonds directly rather than paying a fund company to package and manage them within a pooled investment vehicle.

Mutual funds generally charge annual operating expenses that are deducted from fund assets. These may include:

• Investment-management fees
• Administrative and recordkeeping expenses
• Shareholder-service and marketing costs
• Legal, accounting, custodial, and other operating expenses
• Transaction costs associated with buying and selling securities within the fund

Because many of these costs are deducted internally, they may not appear as separate charges on an account statement. Nevertheless, they reduce the return received by the investor.

A mutual fund’s stated expense ratio also may not include all trading costs incurred as the manager buys and sells securities. Brokerage commissions, bid-ask spreads, market-impact costs, and other transaction expenses can create an additional layer of cost, particularly in funds with high portfolio turnover.

Some mutual funds may also impose sales loads, redemption fees, or other account charges.

Individual stocks and bonds can still be subject to commissions, markups, markdowns, bid-ask spreads, and other transaction costs when purchased or sold. However, these costs are connected to specific transactions rather than an ongoing internal fund-management layer.

ETFs can serve an important role when they provide efficient exposure to a specific asset class, market segment, industry, or investment theme.

ETFs charge internal expense ratios, but many broad-market and institutional-quality ETFs have significantly lower costs than actively managed mutual funds. Some may also have lower turnover and greater tax efficiency, although this varies by investment.

In a typical Di Bello Financial portfolio, individual stocks and bonds represent approximately two-thirds of the investment allocation. Because these directly owned securities do not have ongoing internal fund expense ratios, only the portion invested in ETFs is subject to ETF operating expenses. As a result, the impact of ETF internal fees on the overall portfolio is generally minimal.

Before using an ETF, we evaluate its:

• Expense ratio
• Holdings
• Trading volume and liquidity
• Portfolio turnover
• Tax efficiency
• Role within the overall portfolio

The objective is not to avoid every pooled investment. It is to use ETFs selectively where they provide efficient diversification or access to a particular market opportunity while keeping internal investment expenses low across the portfolio as a whole.

Owning individual securities does not mean concentrating a portfolio in a small number of companies or isolated investment ideas.

Individual stocks, bonds, and selected ETFs are organized within a diversified, risk-based allocation that may include exposure across multiple companies, industries, sectors, asset classes, bond issuers, maturities, and income sources.

The appropriate mix depends on the client’s:

• Investment objectives
• Risk tolerance
• Time horizon
• Income and liquidity needs
• Tax position
• Existing investments
• Concentrated stock exposure
• Capacity to withstand market volatility

A growth-oriented investor may hold a greater equity allocation, while a client focused on income, capital preservation, or near-term liquidity may hold more bonds and defensive investments.

Position sizes are also evaluated within the context of the entire portfolio. A stock or bond may be attractive on its own but inappropriate if it creates excessive exposure to a company, sector, industry, or investment theme.

Mutual fund investors do not control when the fund buys or sells its underlying securities.

When a mutual fund realizes gains, those gains may be distributed to shareholders—even when the investor did not sell any fund shares. An investor may therefore owe tax because of decisions made by the fund manager rather than as part of the investor’s personal tax strategy.

An investor can also purchase a mutual fund shortly before a year-end distribution and receive a taxable gain attributable partly to activity that occurred before the investment was made.

With individual securities, we have greater control over when gains and losses are realized. This allows investment decisions to be coordinated with:

• Current and projected tax brackets
• Capital-loss carryforwards
• Charitable-giving plans
• Roth conversion strategies
• Concentrated stock positions
• Major liquidity events
• Changes in income or retirement status

The objective is not simply to reduce taxes in one year. It is to manage investment taxes strategically over time.

Tax-loss harvesting involves selling an investment that has declined in value and using the realized loss to offset taxable capital gains. Subject to tax rules, excess losses may also offset a limited amount of ordinary income, with unused amounts carried forward.

A mutual fund contains many securities bundled into a single investment. Some holdings may have declined while others appreciated, but the investor generally cannot sell the individual positions with losses.

Direct ownership allows us to evaluate each security separately and determine whether realizing a loss is appropriate while maintaining the portfolio’s overall investment strategy.

Stock prices do not always move in proportion to the long-term strength of the underlying business. A financially sound company may experience a temporary decline because of:

• A disappointing earnings report
• Short-term economic uncertainty
• Negative market sentiment
• Industry-wide weakness
• A temporary operational challenge
• Broad market volatility
• Investor overreaction to news

When we believe a company’s long-term fundamentals remain attractive, a temporary decline may provide an opportunity to purchase shares at a lower valuation.

By investing in individual companies, we can evaluate each opportunity based on factors such as financial strength, competitive position, earnings potential, cash flow, balance-sheet quality, and long-term prospects.

When appropriate, we may place a purchase at a targeted price or add to a position during market weakness. This does not guarantee that the stock will recover or produce a profit, but direct ownership gives us the flexibility to make company-specific decisions rather than automatically buying every security held by a mutual fund.

Individual-stock portfolios also allow us to invest selectively in themes that may benefit from structural economic, technological, demographic, or policy changes.

Depending on market conditions and client objectives, these may include:

• Artificial intelligence and semiconductors
• Cybersecurity
• Industrial automation
• Energy infrastructure
• Healthcare innovation
• Aerospace and satellite communications
• Financial services
• Critical minerals and supply-chain security

Investment themes are not permanent allocations. They may shift as economic conditions, interest rates, government policy, technological developments, industry fundamentals, and geopolitical events change. We continually evaluate whether a theme remains attractive and whether the associated risks, valuations, and long-term opportunities continue to support its place within the portfolio.

A compelling theme does not make every company within it a good investment. We evaluate individual businesses based on financial condition, earnings and cash-flow potential, competitive advantages, management quality, valuation, and long-term growth prospects.

Thematic holdings are incorporated within the client’s broader diversified, risk-based portfolio and sized according to overall objectives and risk limits.

This allows us to pursue selected opportunities without automatically owning every company included in a thematic mutual fund or ETF.

Mutual fund investors own shares of a pooled vehicle rather than the underlying securities directly. 

Although funds publish information about their holdings, investors do not control which companies are owned, when holdings are changed, or how the manager responds to market conditions.

With an individually constructed portfolio, clients can see the securities they own and understand:

• Why each investment was selected
• How much exposure exists within each company or sector
• Where portfolio income is generated
• Whether holdings overlap with outside accounts
• How the portfolio reflects their objectives and risk profile

Direct ownership can also help identify unintended concentration. This is particularly important for executives and business owners who may already have substantial exposure through restricted stock units, stock options, employee stock plans, or ownership of a closely held business.

Mutual funds are designed for a broad group of shareholders. Each investor generally owns the same underlying portfolio regardless of individual circumstances.

A directly managed portfolio can be customized around factors such as:

• Risk tolerance
• Time horizon
• Income needs
• Tax bracket
• Existing investments
• Concentrated stock
• Charitable objectives
• Estate-planning considerations
• State of residence
• Retirement and distribution planning

Customization also includes asset location—determining which investments should be held in taxable accounts and which may be better suited to IRAs, Roth IRAs, or other tax-advantaged accounts.

Two investors may own similar investments but experience different after-tax outcomes depending on where those assets are held.

Where appropriate, we may use individual municipal, government, or investment-grade corporate bonds.

Like individual stocks, directly owned bonds do not charge an annual mutual-fund expense ratio. They may also provide:

• Defined maturity dates
• Predictable interest payments
• Greater control over credit quality
• Selection of specific issuers
• More precise cash-flow planning
• The ability to build a customized bond ladder

Individual bonds can be diversified across issuers, credit qualities, sectors, maturities, and bond types to help manage income, liquidity, interest-rate exposure, and credit risk.

A bond mutual fund does not normally mature on a specific date. Its value fluctuates as the fund continuously buys and sells bonds, and it incurs internal management expenses and portfolio transaction costs.

Individual bonds remain subject to interest-rate, credit, default, call, liquidity, reinvestment, and transaction-related risks. However, direct ownership can provide greater control over the bond allocation and its role within the financial plan.

Investment management and tax planning are closely connected.

An investment decision can affect:

• Capital-gain exposure
• Medicare income-related surcharges
• Net investment income tax
• Taxation of Social Security benefits
• Estimated tax payments
• Charitable deductions
• Roth conversion capacity
• Required minimum distributions
• Estate and gifting strategies

Because Di Bello Financial integrates investment management with financial and tax planning, portfolio decisions can be evaluated in the context of the client’s complete financial picture.

The goal is not merely to maximize a stated investment return. It is to improve the amount of wealth the client may retain after taxes, investment expenses, transaction costs, and risk are considered.

Mutual funds are not inherently inappropriate. They may be useful in employer-sponsored retirement plans, smaller accounts, specialized asset classes, or situations in which direct portfolio construction is not practical.

Some retirement plans offer only mutual funds, and certain funds may provide efficient access to markets that would otherwise be difficult to reach.

The distinction is that we do not automatically rely on mutual funds when individual securities or low-cost ETFs may provide greater control, lower internal expenses, improved tax flexibility, or more precise portfolio construction.

Each investment should have a clearly defined purpose within the portfolio.

Building portfolios with individual stocks, individual bonds, and selected ETFs requires ongoing research, disciplined monitoring, diversification, and active tax management.

At Di Bello Financial, portfolios are designed security by security and arranged within a diversified, risk-based framework coordinated with each client’s financial plan, tax position, income needs, risk tolerance, and long-term objectives.

This approach allows us to:

• Own individual stocks and bonds without internal fund expense ratios
• Keep overall internal investment expenses low by using ETFs selectively
• Reduce additional layers of pooled-fund expenses
• Manage securities within a diversified, risk-based portfolio
• Evaluate companies based on quality, fundamentals, and valuation
• Purchase shares during temporary price weakness when appropriate
• Invest selectively in market themes that may evolve over time
• Manage gains and losses at the individual-security level
• Coordinate investment decisions with year-round tax planning

For high-net-worth individuals, executives, retirees, and business owners, the more meaningful question is not simply how an investment performed before taxes and expenses. It is how effectively the entire portfolio supports the investor’s goals on an after-tax, after-expense, risk-adjusted basis.

Important Disclosure: This article is provided for educational purposes only and should not be considered individualized investment, tax, or legal advice. Mutual funds, ETFs, stocks, and bonds involve investment risk, including the possible loss of principal. Individual securities may involve greater volatility and company-specific risk than broadly diversified investments. Diversification and asset allocation do not guarantee a profit or protect against loss. Mutual funds and ETFs incur internal expenses and transaction costs, while individual-security transactions may be subject to commissions, markups, markdowns, bid-ask spreads, and other trading costs. Thematic investing may involve increased exposure to particular industries or economic sectors. There is no assurance that an investment purchased following a price decline will recover or produce a profit. Tax-planning strategies depend on each individual’s circumstances and may change as tax laws and regulations evolve. Consult with qualified financial, tax, and legal professionals regarding your specific situation.

About the Author

Annette Di Bello, CPA, PFS, CFP® is the Founder and CEO of Di Bello Financial, a fee-only fiduciary wealth management firm headquartered in Mission Viejo, California. With more than 35 years of progressive accounting, tax, investment, and financial planning experience, she specializes in helping high-net-worth individuals, business owners, executives, and retirees integrate investment management with proactive tax planning. Annette provides personalized portfolio management, comprehensive financial planning, and year-round tax strategy designed to help clients build, preserve, and transfer wealth more efficiently.

© 2026 Di Bello Financial. All rights reserved.

For high-net-worth investors, investment success is measured not only by returns, but by how much of those returns are retained after taxes. A thoughtfully constructed portfolio can help reduce tax drag, improve after-tax performance, and support long-term wealth preservation.

Tax-efficient portfolio construction integrates investment management and tax planning to help investors keep more of what they earn.

Different investments generate different types of taxable income. Placing assets in the appropriate account type can improve overall tax efficiency.

For example:

• Tax-efficient equity investments may be well suited for taxable accounts.
• Bonds and income-producing assets may be better held in tax-deferred retirement accounts.
• Growth-oriented investments can often benefit from Roth accounts, where future gains may be tax-free.

The goal is to place investments where they can generate the greatest after-tax benefit.

High-net-worth investors often accumulate significant unrealized gains over time. Selling appreciated assets without a plan can create substantial tax liabilities.

Strategies may include:

• Tax-loss harvesting
• Gradual realization of gains
• Charitable gifting of appreciated securities
• Coordinating sales with lower-income years

Proper planning can help reduce the tax impact of portfolio changes.

Certain investments are inherently more tax-efficient than others.

Examples include:

• Broad-market index funds
• Tax-managed mutual funds
• Exchange-traded funds (ETFs)
• Municipal bonds for taxable accounts

These investments may help reduce annual taxable distributions and improve after-tax returns.

Many high-net-worth investors hold significant positions in a single stock due to business ownership, stock compensation, or inheritance.

While concentrated positions can create wealth, they also increase risk and may complicate tax planning.

A structured diversification strategy can help manage both investment risk and tax consequences.

Investment decisions should not be made in isolation. Changes in income, retirement plans, charitable goals, business transactions, and estate planning strategies can all affect portfolio construction decisions.

By coordinating investment management with tax planning, investors can often identify opportunities that may otherwise be overlooked.

Tax-efficient investing is not simply about minimizing taxes this year. The objective is to maximize after-tax wealth over a lifetime.

This may involve balancing current tax savings with future opportunities, preserving flexibility, and aligning investment decisions with long-term financial goals.

We help high-net-worth investors integrate tax planning and investment management to create strategies designed to preserve wealth and improve after-tax outcomes. 

Important Disclosure: This article is provided for educational and informational purposes only and should not be construed as investment, tax, legal, or accounting advice, or as a recommendation to buy or sell any security. Every individual’s financial situation is unique. You should consult with qualified professionals before making financial, investment, or tax decisions. Past performance does not guarantee future results.

About the Author

Annette Di Bello, CPA, PFS, CFP® is the Founder and President of Di Bello Financial, a fee-only fiduciary wealth management firm headquartered in Mission Viejo, California. With more than 35 years of progressive accounting, tax, investment, and financial planning experience, she specializes in helping high-net-worth individuals, business owners, executives, and retirees integrate investment management with proactive tax planning. Annette provides personalized portfolio management, comprehensive financial planning, and year-round tax strategy designed to help clients build, preserve, and transfer wealth more efficiently.

© 2026 Di Bello Financial. All rights reserved.