4 Ways to Protect Wealth

4 Keys To Wealth Protection

No matter how much money you have, finances are almost always a concern. High net worth individuals and successful entrepreneurs often worry, but the details of that stress have evolved from juggling paychecks to preserving nest eggs. Here are the 4 most common worries for protecting your wealth:

1. Investments

Likely at the top of your worry list is the impact of making poor investments. Anyone who has built substantial wealth is naturally concerned about protecting it. Because as much as 90% of portfolio performance comes from being properly diversified, asset allocation must be carefully considered. This decision should be shaped by your unique objectives, cash flow needs, time horizon, and life experiences. Then, depending upon your risk tolerance, choose a general philosophy you’re comfortable with. One bit of good advice is to embrace a ‘win by not losing’ mentality. Good advisors, if you’re relying on one, should be considerate of downside protection. Warren Buffett said it ever so eloquently – “the single greatest way to compound wealth is to avoid large losses.”

2. Cash Flow

As you transition from working for the money to having the money work for you, another worry may be how to support your lifestyle. To complicate the situation, your nest egg is threatened by low interest rates, a steady bull run in the stock market, longer life expectancy, and the looming threat of inflation. To give you confidence in a long-term distribution strategy, several factors must be considered to solve for the ‘magic number’ needed to support your lifestyle including: sequence of returns, volatility, portfolio withdrawals, taxes, life expectancy, inflation, and more. Then, how will your cash flow needs be met? Income can be produced from a variety of your investments, such as tax-free municipal bonds, corporate and government bonds, cash flow generating real estate, agricultural lending, farmland financing, and stock dividends. And remember, it’s important to revisit your plan as the economic environment and your unique needs change.

3. Taxes

Minimizing your family’s tax obligations is key to protecting and growing your wealth. After all, it is what you keep, not what you earn, that really matters. Taxes can diminish your earnings and your estate by close to 50%! That is definitely something to worry about. Fortunately, there are a number of strategies you can utilize to soften the blow, particularly before major life events such as selling your business or transferring wealth to future generations. Your investment strategy must maximize after-tax returns and there are ways to optimize tax returns and estate planning documents, so scrutiny here will pay off.

4. Impact Of Wealth Windfalls

How to emotionally handle a wealth windfall may not be a conscious stressor, but the fact of the matter is a lot of emotion can come from such an event. Elation, empowerment, adrenaline, and a sense of freedom are all feelings you can expect. Conversely, you may also find yourself dealing with a heightened sense of responsibility, emptiness, paranoia, insecurity or even a general feeling of “really, that’s it?” These are all normal but can cause unnecessary stress around your financial wealth event. 

Research reflects that approximately 30% of wealth is transferred beyond the second generation, and only about 10% beyond the third. The major reason for this phenomenon is the lack of legacy planning. To that end, if you’ve had a financial windfall, you should be asking yourself:

  • Now that I have this level of wealth, what do I want to do with it?
  • What are my family’s core values and how do I ensure they drive all the decisions we make?
  • How can my family have the greatest positive impact with our time, talents and treasure?
  • How do I ensure that my family- especially my children- is prepared to successfully steward this wealth?
  • How do I ensure that the people around me are ones that I can trust?
  • What legacy am I trying to live and ultimately leave for future generations?

In too many instances, we approach financial windfalls by only focusing on preparing the assets for the family. It is easy to forget to prepare the family for the assets. Create a bucket list. Make a list of all your passions and priorities. Create a family values statement with your family. It’s vital to use these lists to develop your financial plan.

What Can Be Done?

Expert advice can help you navigate these worries and ease your stress level, but financial advisors help only if you find one you trust. That sounds patently obvious at face value but it’s truly surprising how many people don’t understand financial advising. Priority number one is you want to ensure your advisor places your best interests first. This can be complex for some advisors when the reality is they are commissioned on investment products being sold by their company. It’s not to say those opportunities are bad, but are they best?  This need for trust is compounded for entrepreneurs who have just gone through a liquidity event and have their entire life’s work on the line.

In the end, it’s all about navigating your options. A trustworthy advisor who considers all opportunities can ease your worries and provide you with the leadership your family needs.

About PagnatoKarp

With $4.8 billion assets under advisement²PagnatoKarp specializes in Intelligent Wealth Management™ for CEO Founders, wealth creators, entrepreneurs and ultra-high-net-worth families. Frequently ranked on top financial advisor lists by Barron’s and Forbes, and a Virginia Best Place to Work³, our goal is to help protect, simplify and elevate your life so you have more time to spend on what matters to you most.

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