Wealth planning is a widely misunderstood concept. Although wealth planning can become quite complicated, it doesn’t have to be. Modern financial markets and products have made it easy for anyone to begin building their savings. It’s also never too late to start.
What Is Wealth Planning?
The term “wealth planning” simply refers to building and protecting your savings. This type of financial planning can provide a simple and easy-to-follow road map that enables savers to make a plan, track progress and achieve financial independence.
Wealth management involves numerous factors and is not focused strictly on money. According to investopedia.com, “wealth management is more than just investment advice.” Money is a key component, but real planning also includes issues like credit, insurance and estate planning.
Portfolios and Risk
A key component of wealth planning is determining what investment vehicles to use. For a long time, many investors simply used a strategy of buying stocks and bonds. This mix of stocks and bonds could then be adjusted as the investor aged or market conditions changed. Although stocks and bonds may still make up the bulk of a savings portfolio, there are numerous other vehicles that may potentially add value. Investments can be made in alternative asset classes such as real estate, metals and commodities. Investors also have the option of buying not only domestic but also international stocks and bonds.
The type of portfolio that is used will depend on the investor’s risk tolerance and time frame. A younger investor may be more comfortable with riskier assets because they have a longer time horizon. An older investor may prefer investments that carry less risk, as they do not want to lose a chunk of their portfolio as they approach retirement age. In fact, risk is a primary factor that should be strongly considered when planning finances.
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Earning and building wealth is only part of the battle. Once you have accumulated wealth, it is just as important to then protect that wealth. A simple example of this would be maintaining insurance on key assets like a house or boat. Asset protection is commonly overlooked but should be considered a priority when it comes to wealth management.
Should You Use Professional Wealth Planners?
The wealth planning profession has grown significantly over the decades. These advisors can help investors navigate the waters of finance. They can also assist investors in making sure that they have covered all of the necessary bases. It is up to every investor to determine if they need assistance. Financial and wealth planners do not work for free, and will often charge a flat fee and/or a percentage of assets under management. According to forbes.com, hiring a wealth manager may be especially important now that pension plans are largely a thing of the past. Without such plans, investors have become increasingly responsible for their own wealth and retirement savings.
Modern wealth planning does not have to be overly complicated. There is a wide variety of free information online and in books that can be used to start planning. This information may also lead you to conclude you need professional assistance. If that’s the case, ask if they are a fiduciary. A fiduciary is supposed to work in their client’s best interest.
For additional wealth planning resources, check out IRS.gov’s retirement tax planning page.