High Net Worth Financial Planning: Strategies for Wealth Preservation and Growth

Having a lot of money is ideal. It is literally what we all strive for throughout the week. But those blessed with $$$ know the struggle of preserving and growing wealth. From finding different investment opportunities to dealing with tax concerns, individuals with a high net worth have a lot on their plate to tackle.

Fortunately for HNW individuals, a comprehensive and conscientious financial plan can help you strive towards a path of financial liberty where not only are you preserving your current wealth but also exploring new ventures leading to significant growth in your financial status. 

Let’s explore some influential financial planning strategies for high-net-worth individuals for short- and long-term ventures. 

Wealth Preservation

So, you earned that money — great! Now it’s time to head on the quest to preserve the money for long-term financial security. Here are some helpful strategies to do so. 

  1. Diversified Investments

One of the most common things that rich people do is invest. Since you have the money, it’s quite natural for you to want to invest the funds for a return. Invest your money in a diverse portfolio of stocks and bonds to reduce the risk of losing money. investment planning professionals also recommend maintaining active and passive investments to eliminate the risk of a huge loss.

  1. Risk Management 

As a high-net-worth individual, you are looking for new opportunities to grow wealth. But that’s only possible if you are able to preserve your current one. A critical strategy to deal with this concern is by assessing the current and potential risks and developing a contingency plan against them. For instance, you can seek insurance coverage to protect your assets, teach your family the importance of emergency funds, and regularly perform a financial needs analysis to mitigate the risk of losing money. 

  1. Smart Tax Planning 

According to Albert Bushnell Hart, Taxation is the price paid by civilized communities to remain civilized. And as a civilized member of the community, who wants to preserve his wealth, you must plan your taxes wisely. 

A tactical tax plan involves tax-efficient investments that minimize the amount of tax return due to you. You can do that by putting your money in smart investment choices such as Index Funds and ETFs, Municipal bonds, ETNs, Roth IRA, and real estate investments. Consider putting your money in tax-leveraged accounts like college savings fund, 401(k), medical savings, and government bonds. It can be challenging to withdraw money, but you can consider it a valuable contribution for yourself and your family for the future. 

Other options for smart tax planning include estate planning, utilization of tax credits, LLCs, and income splitting. The plan you choose depends on you but onboarding a fiduciary financial planner can really help you find the best option out there.

  1.  Family Education 

It’s challenging to adhere to a well-constructed wealth preservation plan if your family is not onboard with you. Before finalizing a strategy, take some time with your dependents and inform them about the changes that you plan to make in your wealth management strategy. 

Preserving your wealth doesn’t mean that your family won’t be entitled to anything or allowed to use your money/assets. It simply implies that everyone gets a certain amount they are allocated so that you do not go overboard with your finances. If your family is aware of the wealth preservation plan, they will make informed decisions with the funds. 

Growth Strategies

After getting your preservation strategies in line, you need to focus on growing your assets. For high net-worth individuals, growing your health is a combination of preservation strategies and finding profitable investments. 

Here are some options to grow your wealth: 

  1. Estate Planning 

Everything that you practically own in terms of assets is your estate. We are talking about your house, car, bank accounts, cash, insurance, investments and pretty much anything that you own. An estate plan might sound like a way to determine asset distribution after death but it goes beyond that. 

A strategic estate plan can help you minimize your taxes and ensure an efficient transfer of wealth to the heir. Moreover, having a plan to protect your assets is also useful in protecting high-net-worth assets from legal claims — worry about making new assets rather than preserving the ones you have. 

In addition to distributing wealth rightly, an estate plan can also separate your assets and your business to ensure that you use your personal money to invest in other items. Review your estate regularly and get it evaluated by a financial needs advisor to find a suitable plan. 

Some of the popular tools include trusts, wills and life insurance. We start with trusts, which are a versatile estate planning instrument. They offer the granular control for you to decide how your assets will be distributed and also have the potential to reduce estate taxes.

Wills are central to estate planning, allowing individuals to announce/specify beneficiaries of their estate and guardians for minors if there will be any. A will makes sure that one’s wishes will be legally honored after they have passed away.

Another tool often overlooked is life insurance which can act as a strategic tool in estate planning, that may provide liquidity for estate taxes and help support family members financially.

  1. Business Ventures 

Most HNW individuals generate their finances from businesses and investments. A corporate job just doesn’t get you there. Consider putting your money in one/multiple side businesses to generate additional income that can be a source to save money and increase wealth. 

However, it is mandatory that before making a business decision, you go into the market to evaluate what will really work. For example, if you are living in a country with an economic crisis, a business of luxury items might not be a hit as compared to providing basic necessities to the local community. So, learn the art of choosing the right business before putting your money in. 

You can also look for opportunities that run on partnerships that seem promising and are referred by a trusted source. Partnerships are easier to manage as you can divide responsibilities with your partner and focus on other ventures. Apply the risk management techniques discussed in the wealth preservation section to avoid the risk of losing everything you own. 

  1. Real Estate Investments 

One of the most risk-free and evergreen ventures to put your money in is real estate. Securing property under your name not only adds to the list of assets but also provides you with a rewarding income stream in the form of rent. 

Make your real estate investments in family and vacation zones where people are more likely to invest in. For instance, the State of Florida is known for family residences and vacation houses. The property is a bit expensive there but you can quickly rent it out at a higher price to yield a return much quicker.

4. Philanthropy

Philanthropy as a part of high net worth financial planning is not only a means of giving back to society but also can be a strategic tool. Primary way of doing this is direct charitable giving which allows people to not only make significant contribution to the causes they care about but also receive tax deductions as an added benefit.

Another tool is charitable trusts which enable individuals to not only engage in charity but also retain benefits like the return of principal and income streams.

 Critical Analysis

While the financial strategies outlines have numerous benefits, but they are not free from inherent risks and considerations. For example, granted that investment diversification reduces risk but it is only possible with investment expertise for multiple domains. Another risk is dilution of potential returns which can accompany over-diversification.

In case of tax strategies, continuous professional guidance may be needed because tax laws are not only complex but they are evolving too. Similarly trusts and wills also require professional guidance to design these meticulously to avoid any legal pitfalls.

Conclusion 

High net-worth individuals like to protect their current wealth and generate opportunities for more wealth. Start off by creating a culture of wealth preservation by diversifying your investments, implementing risk management techniques and smart tax planning with the help of a financial planner. 

Invest your money in new businesses and strategic partnerships from reliable sources to generate income streams. Investing in safe options like real estate are also a good choice for high net worth individuals. 

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