Wealth management encompasses investment selection and portfolio management, retirement planning, tax legislation compliance, estate and legacy planning Services – typically reserved for those with high net worths.
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Private wealth managers work closely with their clients to help set realistic goals with timelines (if necessary) and assess risk tolerance, reviewing strategies regularly and making adjustments as needed.
1. Asset allocation
Are You Heard the Saying "Don't Put All Your Eggs in One Basket"? This phrase serves as an invaluable rule in investing, wealth management and all other areas of finance.
Your asset allocation should reflect your goals, timeline, and risk tolerance. For instance, if you have more savings than necessary for retirement and plan on spending less during those golden years, taking on more risk may allow for greater returns in stocks than other asset classes.
financial professionals can provide invaluable assistance for those with specific goals in mind, helping to set target allocations based on current needs and anticipated future needs. An advisor may suggest investing in stocks and bonds that offer diversification by industry, market capitalization, geography or term – to name but a few factors.
2. Diversification
Diversifying investments is key for protecting against risk in investing. Diversification allows investors to spread out their investments among various market segments and asset classes in order to lower risk by decreasing the possibility of one major loss destroying your entire portfolio.
Diversifying investments is accomplished in various ways. Within stocks, this can include diversifying by Company size (large-, mid- and small-cap), growth or value performance, domestic or international presence and more. Or you could opt for mutual funds that offer diversification by industry and sector.
Diversifying is essential, yet no exact number can determine its appropriateness. A qualified wealth manager can assist in helping determine how much diversity would best fit with your investment goals and risk tolerance.
3. Taxes
Taxes play a huge role in an investor's after-tax investment return. While fees and trading costs tend to get more press, a persistently high tax drag can have an adverse impact on returns over time.
A skilled wealth manager understands and employs techniques to reduce tax drag. They can also assist in identifying tax-advantaged accounts and investments to take full advantage of.
Wealth management services take a more comprehensive approach to financial planning and asset management, from investing and retirement planning, to estate and inheritance tax services.
Some wealth management firms require investors to meet steep investment minimums before beginning work with them; others provide more cost-effective services by contracting out to independent professionals to provide expertise as needed.
4. Retirement
Wealth management companies can assist with setting up and overseeing retirement plans, tax-efficient investment strategies, savings accounts and other financial instruments. In addition, they offer advice about trusts and charitable tax-deduction vehicles. A personalized plan will be created specifically to your unique needs; investments will be monitored regularly with changes being implemented as necessary.
Your goal should be ensuring a steady income in retirement. In order to do that, start investing early on and pay your taxes as required. Take an investing 101 crash course in terminology, structures and retirement plan options such as 401(k), IRA and Solo 401(K) accounts that allow for higher contribution limits among self-employed professionals. Also remember to plan for estate matters.
5. Estate planning
Wealth managers offer clients services in estate planning. This involves making plans for death or incapacity by creating wills and trusts; additionally, contingent beneficiaries should be named so assets will still go to those you intend.
No matter the value of your assets, it's vitally important to create an estate plan in order to avoid making mistakes and saving loved ones from unnecessary costs related to probate, taxes and legal fees.
Imagine estate planning as the Olympic relay: you want the handoff to go smoothly and safely, not haphazardly. A financial professional can assist in devising an effective plan that reduces taxes while protecting assets against lawsuits, creditors and other threats.