6 wealth management strategies for financial success
If you have wealth to manage - whether it is from your earnings, inheritance, or any other source, it may be time to deploy a few wealth management strategies to make the most out of your corpus and stay protected for the future
New Delhi: Wealth management is a comprehensive service basket that includes investment management and advisory support to facilitate the growth and preservation of your wealth. If you have wealth to manage – whether it is from your earnings, inheritance, or any other source, it may be time to deploy a few wealth management strategies to make the most out of your corpus and stay protected for the future. In this article, we outline six common wealth management strategies used to ensure financial success.
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Six wealth management strategies to ensure financial success
Risk-balanced asset allocation
Every individual has a certain risk-reward preference which outlines the amount of risk they are willing to shoulder in exchange for a certain amount of gains. Wealth managers conduct risk analysis to evaluate your capacity to tolerate risk. They assess various factors like your investment goals, personality, current and future financial obligations, and more to understand your risk tolerance. Based on these insights, wealth managers help you pick the right assets from various financial online marketplaces that align with your financial goals, risk appetite, and growth expectation. This strategy aims to optimise returns to effectively grow your wealth while ensuring the lowest possible risks.
Investment portfolio diversification
The diversification strategy helps you disperse investment risks across various asset classes to limit exposure to any one particular class/sector. The inherent rationale is to reduce risks associated with market fluctuations. Since different asset classes may react in different ways to market changes, investing in a varied basket of securities like equities, commodities, real estate, and others can reduce the impact of a downturn in one asset class/sector. Additionally, diversification also tends to yield higher long-term returns on average making it a good strategy for financial success.
Tax-efficient planning
Taxes can eat away at your wealth earnings. Therefore, the goal of wealth management is to retain as much of your accumulated wealth as possible. To this end, wealth managers deploy various strategies to ingrain tax efficiency into your portfolio. While this includes dedicating a part of your portfolio to tax-saving 80(C) investments like PPF and NSC, it also includes timing asset sales appropriately to minimise your tax outflows. For instance, holding on to your capital assets for more than a year before sale qualifies them for a lower LTCG tax, effectively reducing your tax liability. Similarly, you can carry over capital losses for 8 consecutive years to offset capital gains and reduce your liabilities. Understanding these provisions and using them appropriately can help you preserve your wealth.
Early retirement planning
Another potent wealth management strategy involves starting retirement planning early. To lead a comfortable retired life, you will need to calculate the anticipated retirement costs and adjust the same for inflation. You will also need to assess potential income sources. Based on these estimates, wealth managers and advisors help you plan the right investments that can bring you the desired returns plus other benefits. For instance, wealth management advisors can help you compare and select ideal retirement investments – be it pension plans or government-backed schemes like PPF. They will also review the tax nuances of these options to select investments that offer the dual benefit of growth and tax-savings to effectively preserve your wealth. In fact, wealth managers can also offer advice on optimal asset withdrawal strategies during retirement to ensure you do not exhaust your corpus before time.
Insurance management
Insurance management is about protecting your wealth corpus from unforeseen events. You can work with wealth management advisors to understand your insurance needs and then select appropriate coverage. For instance, life insurance plans create a financial safety net for your dependents in your absence, while property insurance protects your valuables against theft and damage. Apart from risk management, insurance also plays a vital role in reducing your annual tax liabilities since premiums qualify for various deductions under the IT Act.
Estate planning
Estate planning is often defined as the cornerstone of wealth management. Estate planning strategies ensure that your wealth is passed on to your loved ones in the way you intended. To avoid confusions and conflicts after your death, it’s best to plan ahead. You can plan your estate by drawing up a will or setting up a trust to ensure that your assets are passed on in a tax-efficient way.
Conclusion
With the wealth management strategies outlined above, you can ensure long-term financial success. That said, it is important to remember that every individual has unique circumstances and goals. Therefore, what works for one may not work for another. It’s often prudent to consult with a professional to understand which wealth management strategies are right for you. Thankfully, you can find several wealth management experts offering their services through banks and NBFCs. You can consult with these experts to understand the right approach to wealth management for you.
