Building wealth for yourself and your family gives you the freedom to live the life you desire. For most Americans, it’s a careful balancing act between saving enough money for the future while still being able to enjoy life in the present moment. This is where wealth management strategies come into the picture.
The right wealth management strategies will carry through each of the four stages of your financial life cycle, from the foundation you set starting out, to building, protecting, and passing down your wealth. Your strategies will evolve as your life changes, but they should always guide you toward the vision you’re hoping to achieve. In this article, we’ll explore 12 wealth management strategies to help you reach your financial objectives.
Stage 1: Set Your Wealth Foundation
They say you can’t build a great building on a weak foundation the same is true for your wealth wealth management strategy. To support your financial game plan, you need to be on solid ground with a few key elements in place first. let’s walk through three strategies involved in this beginning phase of your financial life.
1. Setting Goals And Developing Habits
This is not only a key foundational step it should also be woven throughout your entire wealth management strategy in the form of regular reviews. However, setting and reviewing goals is only part of the equation. You also need to develop effective habits to ensure you actually reach your goals.
Research on satisfaction and successful outcomes shows that the people most likely to achieve their objectives are those who become satisfied with their habits. For example, say you’re starting out on your wealth building journey and you want to save $1 million. You have nothing saved yet, but after the first year, you have $10,000. It might still feel like you’ve got a long way to go, but if you invest $10,000 a year for 30 years, you’ll get pretty far, especially when you consider compounding interest!
The takeaway here? If you’re going to set big goals, it’s going to take time to reach them, but your habits will help you cross the finish line.
2. Managing Risk
It’s critical to assess what can go wrong on your wealth building journey, and where the headwinds might come from that you could find yourself working against. While you can manage risk in a handful of ways, for important financial risks where the probability is low and the potential loss is high, one of the most effective methods is to transfer these risks to an insurance company.
When you enter an insurance contract, you transfer the majority of the financial risk to the insurance company. They in turn reimburse you if you incur a loss. Health, life, disability, property, and auto insurance are all types of insurance worth considering as you set your wealth building foundation. Of course, when possible, it is also important to avoid risks that should simply be avoided.
You should also consider long-term risks like inflation and costs that you’re going to bear throughout your life no matter what stage you’re at. For example, creating a will is a smart move, especially if you have a young family you want to protect in the event of your death.
3. Understanding Cash Flow
Cash flow is the balance of your income and expenses. Understanding how well you’re managing this balance is a crucial step before you set out on a plan to build wealth.
As you develop your wealth building strategy, ask yourself what capacity you have to save the money you need to reach your goals. Try not to let this part of the process overwhelm you, because you’ve got options, you could decrease your expenses, for instance, or increase your income. Sometimes this requires further planning, such as enhancing your skill set or education or shifting careers. The bottom line is to know how your cash flow aligns with your objectives and try to close any gaps.
Stage 2: Start Building Wealth
Now it’s time to put your savings to work and invest your money strategically. We believe it’s best to take the long view when it comes to accumulating assets. We’re not in this game to make a quick buck! So, let’s look at the major wealth building steps to take next.
1. Leveraging Your Knowledge And Assets
You can leverage both your knowledge and assets to help you build wealth by educating yourself on wealth management strategies (like you’re doing right now!), using debt (such as a mortgage on a primary residence) to create wealth, or even starting a business. Your knowledge and ability are assets that collectively form your human capital. But the presence of your human capital alone won’t build wealth, you need a plan in place to transform your skills into financial wealth.
If you choose to work with a wealth manager, they can help you think through your wealth building journey, and can act as a sounding board for ideas. They can also be a resource for financial expertise.
2. Creating An Investment Portfolio
Investing in the stock market and other wealth building vehicles is a great way to grow your nest egg on your terms. The key is to define your objectives and construct a portfolio that is optimized to give you the returns you need, without more risk than you want.
Identifying the right mix of assets for your portfolio is imperative. Consider the best way to diversify your investments or allocate them across stocks and bonds and asset classes. Also think about what types of accounts you’re saving your money in, and try to use tax-efficient accounts like Individual Retirement Accounts (IRAs), 401(k)s, or Roth IRAs.
3. Rebalancing Your Portfolio As Needed
Once you’ve created an investment portfolio that’s appropriate for your personal situation and risk tolerance level, review it annually to see whether it needs to be rebalanced.
Rebalancing takes the guesswork out of navigating the ups and downs in markets. By identifying a mix of investments that is right for you, and maintaining that mix through a set of rules, an investor can appropriately control risk in their portfolio and avoid the temptation of predicting what the market is going to do next.
Stage 3: Preserve Your Wealth
By now, you’re surpassed the point of financial independence and you’re focused on preserving the wealth you’ve already built. let’s explore the steps to take from here on out.
1. Conducting Ongoing Financial Planning
If you’ve paid off your mortgage, put your kids through college, or closed the book on a 30-year career, you can and should put your feet up and relax for a while! However, it’s still important to conduct ongoing planning to keep your finances in order.
Regular financial planning can help you understand your withdrawal rate, or how much of your savings you’re consuming from your investment portfolio. This will ensure that your wealth management strategy stays on track for years to come.
2. Monitoring Your Spending
As you’re amassing money over time and earning a return on the wealth you’ve built, stop and review how frequently you’ve been tapping into your portfolio for big-ticket expenses like vacations or vehicles.
If this is a common occurrence, ask yourself whether your spending is jeopardizing your other long-term goals. You may find that you’re simply spending at an appropriate level, in which case, carry on and book that cruise!
3. Managing Your Sequence Of Returns
For those in retirement, and in particular during the first few years of retirement, the importance of monitoring your plan and your portfolio increases. In this period of time, it’s critical to measure how much money is coming out of your portfolio relative to how the portfolio is performing.
If the markets work against you in the first few years of retirement, precisely at the time you begin taking money out of your portfolio, and if too much money comes out, then the portfolio doesn’t have enough ‘breathing room’ to potentially recover over time. Too much, too soon can have a lasting impact on your ability to spend in retirement.
Stage 4: Prepare To Transfer Your Wealth
Whether or not you are considering a multi-generational approach to your finances (i.e., if you plan to pass down wealth to your heirs), we find it’s helpful to think of your financial life not as having an endpoint, but as continuing on even after you pass away. So, let’s review the final steps of crafting a wealth management strategy for yourself and your loved ones.
1. Estate Planning
An estate plan protects you and your family from risk, and outlines your wishes for how your assets will be passed down to your heirs in the event of your death. it’s an integral piece of any wealth management strategy.
Once you’ve worked with your financial advisor and attorney to create your estate plan, you should update your estate plan documents every five to 10 years as needed. This is not only to account for regular changes to the law, but also to address any shifts in your life regarding beneficiary designations.
2. Developing A Philanthropic Strategy
Many Americans wish to leave a legacy through charitable giving. Assessing your charitable intent and integrating appropriate strategies into your wealth management plan is essential to helping you bring your charitable vision to life.
3. Business Succession Planning
While passing down wealth in the form of an IRA is fairly straightforward, business succession planning is much more complex. In many cases, you’re transferring assets that are difficult to transfer. So, it’s important to get a financial advisor on your team for this part of the wealth management process.
Crafting Personalized Wealth Management Strategies
At Curio Wealth, we understand that every client has unique financial circumstances and goals. The wealth management strategies that work for one individual or family may not be a fit for another, which is why we don’t take a cookie-cutter approach to our work.
Instead, our wealth management process involves getting to know you and your personal situation (and maybe even your favorite sports team), so we can provide the right advice for you to help you achieve your financial objectives.
We also know that circumstances and priorities change throughout different phases of life. So, we’ll review your wealth management strategies regularly to ensure they’re still aligned with your needs. Remember that boat you wanted to buy last year? Maybe now, you’ve got your sights set on investment property instead. Whatever you decide, we’re here to help you create a financial plan that can get you closer to your goals.
Interested in learning more? Schedule a call with us today to build a wealth management strategy for your future.