Wealth creation isn’t enough to guarantee you staying rich forever. You have to protect your wealth and set up structures that will reduce risks associated with wealth. Below is a list of top 10 tips for wealth protection.
1. Be mindful of the tax consequences of any investments you make.
Taxes, just like debt can’t be escaped. A significant difference between the rich and the poor is how they see these taxes. The wealthy have learned to understand the effect of taxes and how to exploit it for their benefit. If you look at history, it can be seen from the great recession of 2008 that most mutual funds had a drop of almost 50% in value. In the following year, the wealthy embraced mutual funds with a strong track record. The losses of these mutual funds were carried forward for future investors resulting in less tax drag.
2. Don’t follow the masses.
Think outside the box. Don’t join the masses in congregating on a particular type of investment. Many investments are done with consideration to what the majority are putting their money on. If you want to think like the wealthy, you have to think differently and grow your assets in a unique way. Investments like real estate, private equity, and advanced strategies are what the wealthy put their money on.
3. Work with “smart” people.
To protect your wealth, you have to not only hire professionals, but you also have to consider going all out for the ‘smartest’ professionals in their fields. This is how the wealthy do their hiring. The financial advisors you hire must possess the ability to think critically beyond investment. They must be able to factor in behavioral finance and market history, as well as possessing great communication skills. The wealthy hire accountants that understand complicated tax structuring as well as how to file taxes.
4. Structure of the ownership of assets.
If you examine the ownership structure of the assets of wealthy people, you will realize that they create a structure to protect their wealth. Their major concern is asset protection. After creating wealth, they create a structure to protect their assets. This ensures that unforeseen circumstances do not put their assets at risk. The wealthy are interested in generational wealth and try to pass their wealth to their offspring without a problem.
5. Prepare your children for the future.
Forget the news. The wealthy never give over all their wealth to charity. As stated earlier what they are interested in accruing is generational wealth. So, they will pass their wealth over to children and grandchildren. They prepare their children to take over from them. They enroll them in programs that train them to understand the responsibilities and complications that wealth brings. This is a crucial step that you should take.
6. Debt is not a bad word
All rich families always have one debt or the other that is on their balance sheet. Just like how you can utilize credit cards to improve your personal finance, the wealthy exploit debts in the form of mortgages, securities backed lending and others to increase their wealth. Get a financial advisor who is an expert when it comes to debt utilization and creating a spread between the borrowing cost and return on investments.
7. Create a financial plan.
Rich people don’t invest without a financial plan. If you do so, you are cooking up a disaster. Wealthy people have financial advisors who create a list of assets, liabilities, goals, and expected outlays for their clients. Professionals won’t invest your money without having this plan. Your advisors should work with you on a regular basis to keep themselves updated.
8. It’s not only about the financial markets.
Growing your assets in the markets isn’t enough to increase your net worth from high to an ultra-high. You have to own other assets to complement the growth of your assets. If you are interested in wealth generation, get yourself a financial advisor who understands that financial markets are not the only way to protecting your wealth.
9. Ask your advisor to simplify their data.
Yearly reviews should be simplified. Ask your advisors to break down their data and make it easy for you to understand. Judge them based on their results. Set expectations and ask them for clear statements on investments, benchmarks, returns and more.
10. Avoid concentrated positions.
Use wealth management strategies to diversify the risks that come with wealth and avoid wealth concentration on an investment.
These steps are taken by the wealthy to hold on to their wealth. You should live by this guide if you want to set up a protective structure around your wealth.