Top Wealth Management Strategies

May 23, 2023

As you accumulate assets and work toward financial goals, developing strategies that protect and grow wealth becomes increasingly important.

Here are some top wealth management strategies that have proven effective in helping individuals and families achieve their financial objectives. They include investment diversification, tax optimization, risk management, estate planning, and financial planning.

Investment diversification

One of the most critical components of wealth management is diversifying investments.

Diversification means investing across different asset classes, sectors, and geographic locations. This strategy aims to minimize the impact of catastrophic losses caused by the failure of a concentrated portfolio.

Diversification can be achieved using the following strategies:

• Asset allocation: Allocate funds across different asset classes, like equities, fixed income, real estate, and commodities.

• Sector diversification: Invest in various sectors of the economy, like technology, healthcare, finance, and consumer goods.

• Geographic diversification: Invest in different countries or regions to minimize the impact of events impacts any particular area.

• Time diversification: Invest a fixed dollar amount regularly, regardless of market conditions, often called “.”

Tax optimization

Tax optimization is a critical wealth management strategy that helps maximize after-tax investment returns. The goal is to retain more earnings and grow wealth faster by reducing, deferring, or eliminating tax liability.

Some tax optimization strategies include:

• Tax-deferred investments: Tax-deferred investments, like individual retirement accounts (IRAs) and 401(k) plans, allow investors to defer tax payments on contributions and earnings until withdrawal. With a Roth IRA, you can get tax-free growth and tax-free withdrawals.  At that time, the gains are taxed at your marginal tax rate.

Tax-efficient investing: Invest in tax-efficient assets, like municipal bonds, which can offer tax-free interest income, or exchange-traded funds (ETFs), which are more tax-efficient than mutual funds due to their structure, or index funds, which are often more tax-efficient than actively managed funds.

• Tax-loss harvesting: Offset capital gains by strategically selling underperforming investments to realize a capital loss, which can then be used to offset capital gains and reduce overall tax liability.

Risk management

Risk management involves identifying potential risks to reaching your goals and implementing strategies to minimize their impact.

Some risk management techniques include:

• Diversification: As mentioned earlier, diversifying investments can reduce the impact of a significant loss in a particular holding and reduce the volatility of your portfolio.

• Asset-liability matching: Ensure your investment horizon aligns with the time horizon of your financial goals. For example, long-term investments should fund long-term goals, like retirement or children's education.

• Regular portfolio review: Regularly review and adjust your investment portfolio to maintain the desired risk profile and respond to changes in market conditions.

Estate planning

Estate planning is an essential aspect of wealth management that ensures a smooth transfer of assets to beneficiaries after your death. A well-structured estate plan can minimize estate taxes, protect assets from creditors, and provide financial support to loved ones. Critical components of estate planning include:

• Will: A legal document outlining the distribution of assets upon your death.

• Trusts: Legal entities that hold assets on behalf of beneficiaries. Trusts can offer tax benefits and protect assets from creditors.

• Power of attorney: A legal document that grants authority to a designated individual to manage financial affairs on behalf of the grantor.

• Healthcare proxy: A legal document that designates a trusted individual to make medical decisions on behalf of the grantor if they become incapacitated.

Financial planning

Financial planning is evaluating your current financial situation, setting financial goals, and developing strategies to achieve these goals. A comprehensive financial plan can help you and your family allocate resources effectively and make informed decisions about your financial future.

Critical steps in the financial planning process include:

• Goal setting: Clearly define short-term, medium-term, and long-term financial goals. These may include retirement planning, funding children's education, or buying a home.

• Assess current financial situation: Evaluate assets, liabilities, income, and expenses to determine the current financial standing.

• Develop a budget: Create a realistic budget that allocates income towards essential expenses, savings, and investments.

• Create a financial plan: Develop a comprehensive plan outlining the strategies and steps required to achieve financial goals. This may involve adjusting investment allocations, increasing savings, or reducing expenses.

• Monitor and review: Regularly review the financial plan and make necessary adjustments to account for changes in personal circumstances or market conditions.

Key takeaways

Wealth management requires a strategic investment approach, tax optimization, risk management, estate planning, and financial planning. By implementing these top wealth management strategies, you can manage your wealth while working towards your financial goals.

Consider retaining a qualified financial advisor who can provide personalized advice and help navigate the complexities of wealth management.

At Sensible Portfolios, we are wealth managers for our clients and utilize these strategies.