Working Wealth: the needs and goals of high net-worth individuals

Investigate the financial strategy of any high net-worth individual and you’ll find some common pointers easily applicable to your own aspirations. The first thing you’ll find is that they are rarely rash and reckless; their moves are calculated and assured. They have strategies that are well-versed, refined, adaptable and cautious. And they remain engaged. If it’s ten miles to the next goal – they’re going to do those miles with focus, tenacity, and a steady forward pace.

What works for them – can work for you

  • An investment strategy is not arbitrary. You need to thoroughly evaluate your financial situation before you begin. A high net-worth individual will build an investment portfolio by considered steps. He or she will always consider risks and keep track of value. They develop a plan that becomes a road map for their financial future and helps them to make informed decisions about their money.
  • Secondly, keeping goals in mind, you should consider opening a brokerage account. This opens the way to invest in individual companies and enterprises. A brokerage company executes trades on an investor’s behalf. This means you can grow your money while somebody else does the nitty-gritty work – for which of course you will pay, including paying tax on any capital gains.
  • A key aspect of wealth building for a high net-worth individual will invariably include property. The acquisition of real estate is a vital aspect of any serious portfolio. Property can be rented – or renovated and resold – but either way it will grow in value over time. Property can encompass houses, factories, blocks of flats, business ventures, companies, etc. And of course, intellectual property.

High net-worth persons always keep financial planning front and centre

Create clear goals: High net-worth individuals set clear goals, and understand them. What do they want to achieve? And how will they grow their wealth and generate income? Once they have a clear understanding of their goals, they can develop a financial plan to achieve them. Part of their plan is to always keep retirement planning and tax implications well in hand.

Estate planning: There is always a need to plan how your assets will be allocated after death or in a state of incapacity. Income, costs and risks are like the three main masts on your ship on the market seas. Establish trusts, diversify investments, make charitable contributions – all has impact your portfolio. Make sure you are guided by both a reputable financial advisor and experienced tax lawyer; your estate must be in good hands – both while you are living and when you pass away.

Asset allocation: This a most critical component of high net-worth financial planning. You need to understand your risk tolerance – and this depends on your goals, and will certainly affect them. High risk may bring you some good returns, but also kindle emotional insecurity – which in turn can lead to serious mistakes. So take risk seriously. Greater caution may result in lower returns, but depending on your risk profile this may suit you better.

Diversification: Clever investment always means diversifying investments into various asset classes, such as stocks, bonds, and real estate. In this way you can mitigate the risks associated with any particular asset class.

Rebalancing your portfolio: To stay on track with the market, high net-worth individuals will rebalance their portfolio regularly. Not all assets perform as expected. Keeping the portfolio balanced to favour the better performing assets is essential. In addition, your goals, plans, finances, and priorities will change. No plan stays intact and relevant for decades. If your financial plan isn’t updated regularly, it tends to disconnect from the realities of your life. People who know and respect money will update their goals, their plan, asset allocation, and general investments regularly to rebalance their contributions and engagement with the fluctuations in the market. And they will do this every quarter.

Hedge funds: A hedge fund pools the money of all investors to make complex investments, including investing in various derivatives. Types of hedge funds include long-short funds, market-neutral funds and event-driven funds. Hedge funds are perfect for high-net worth investors as they have the potential for big earnings. There is also some significant risk attached to these types of complex investments, but high net-worth investors should have the cash and the experience to allow them to take those risks.

Tax planning: Another aspect of high net-worth focus when it comes to clever financial planning is a canny approach to taxation. Obviously, they need to reduce the amount of money they have to pay to the state – and this means understanding what tax avoidance tactics are legally allowed, and knowing when to put them to good use. Taking advantage of legal tax loopholes is the clever thing to do.

High net-worth individuals stick to a few good tax rules:

  • Use tax-advantaged savings plans that will help offset current and/or future taxes.
  • Use a variety of investment accounts that will allow you to customise income sources in retirement to help reduce taxes.
  • Keep investments for a longer period of time to prevent unneeded capital gains. It is rarely worth hanging on to a stock you’re not happy with simply to escape taxes.
  • Use any losses to cover gains – known as ‘tax-loss harvesting’ – to help minimise income tax liability on your returns.
  • Keep tax brackets in mind. An unexpected bounce into the next tax bracket could be quite detrimental.
  • Also keep the additional taxes in mind that you could find yourself paying, such as: inheritance taxes, estate taxes, or capital gains tax – so when partnering with your financial advisor, you are able to draw up a serviceable tax plan.

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Working Wealth: the needs and goals of high net-worth individuals