In handling wealth management issues, it's common for clients to ask professionals how much effort they should put into either preserving or growing their wealth. To a certain extent, growth is a preservation method in wealth management planning. However, it's wise to seek an appropriate balance between the two and to recalibrate your approach as circumstances change. Let's look at how a wealth management advisor helps a client accomplish this.
Life Situation
Where you're at in life will dictate much of how you see the balance between preserving and growing wealth. Younger people usually have time to build back losses, and that means they can often take bigger risks. If you've thought about investing in a growth sector of the economy, such as electric car companies, doing it early in the wealth management cycle is likely a good idea.
As someone gets older, the balance starts to tilt toward preservation. This occurs when they marry, have kids, retire, or go through other major life events. As you think about funding a legacy, you'll likely want to make sure the money is there to support your plans. For example, someone establishing a foundation will want to preserve wealth so they can fund those efforts.
Macroeconomic Issues
The larger economy acts as a force that's frequently hard to resist. However, it tends to offer growth opportunities, and you don't want to be too preservation-focused. Timing the big swings in the economy is often a fool's errand, but there is value in watching larger trends. Someone who has invested in commercial real estate, for example, might find themselves moving more resources into warehouses and less into retail properties due to changes in consumption patterns.
Total Wealth
Much of the power of wealth management comes from compounding returns. Your money makes money that you then use to make more money. As your total wealth increases, the need for massive growth declines significantly. Billionaires don't need to aggressively pursue win-now investments to achieve growth, but millionaires may have to be more willing to take risks.
Hedging Against Risks
Events happen at both the macro and micro scales that can drastically disrupt wealth management planning work. Consequently, it's important to think about hedges. Typically, this means buying some exposure on the opposite side of whatever your wealth is tied up with. Popular hedges include insurance, options contracts, commodities, precious metals, and currencies. If your risk is properly hedged, you should be well-positioned to preserve your wealth while also achieving growth on a long timescale.
Reach out to a wealth management advisor to get started on your plan.
