Do you prefer healthcare or sick care? The same can be considered for your wealth.
We prefer preventative measures in both categories – health and wealth. You’ve heard the term healthcare, but in many respects, our system is geared toward those who are sick, therefore providing sick care. While this piece is more geared to wealth than health, the same principals apply.
Proactive wealth management and planning offers the same benefits of true healthcare.
How often do you proactively review your wealth? Do you do it on your own? Do you go to a professional? What does that professional review to determine if you’re extending the life of your wealth or potentially harming the longevity?
There are many subsets to wealth management, and everyone may need to spend more or less time in one area depending on their unique situation. Investments tend to take up the bulk of the media’s attention. Rightfully so, those assets are what will likely help you survive in retirement. But what about the 30 to 40 working years before retirement? What are the healthy wealth-related “exercise” regiments we should perform before crossing into the golden years of retirement?
Digging deeper into wealth management
What should you be looking at first? Believe it or not, when we think about health and wealth, they both boil down to two things we do every day – eat and spend money. Therefore, that is exactly where you should start when thinking about how to improve outcomes in either category.
For wealth management, start with expenses. Not only how much do you spend each month, but where are you spending and is it sustainable? What percentage of your income are you saving and where? Expenses equal lifestyle. Keep this in mind.
What else should you review on a regular basis? Here are the main areas of wealth management:
• Your current financial position – net worth, income, expenses, debt
• Insurance planning – health, life, disability, longterm care
• Investment management – asset allocation, asset location, diversification, real estate investing
• Retirement planning – 401K, IRA, Roth IRA, Roth conversions, strategic distribution
• Estate planning – will, living will, durable power of attorney, trusts, beneficiaries
• Tax planning – How much are you paying the government, now and in the future? Could you be doing this more efficiently? This typically is a team effort between your certified public accountant, certified financial planner and attorney. There are likely many opportunities to create efficiencies. Each professional should be reviewing your tax return through their lens and looking for opportunities to help!
Why are these areas so important? We refer to them in silos, however they are anything but. Wealth management analyzes how these silos interact with one another over time. For the rest of this article, we’ll dive into investment management a bit deeper.
A closer look at investment management
Investment decisions made over time in a person’s asset management plan will impact the long-term health of their financial plan. First, we presume readers accept that over time, a greater rate of return can be achieved by investing in stock and bond markets than in a savings account. It is also accepted that we will experience market fluctuations over time. However, a strategically designed portfolio can optimize your outcome. Just like a medical team looks holistically at multiple health factors, a wealth management team is analyzing the areas mentioned above on a regular basis making recommendations to help client’s reach their goals.
Hedge funds and excessive risk
Occasionally we get questions about riskier investments such as hedge funds. Hedge funds are managed by pooling client’s money into one pot. They use various investment strategies attempting to beat stock market returns. Some strategies may include investing on margin (borrowed money) and trading esoteric assets. In some years, these funds can outpace traditional markets. How? By taking on more risk. With more risk, comes the potential for oversized losses as well. Hedge funds can even be as much as 4x the cost of traditional portfolio management and create unpredictability for a person’s retirement income plan. This is not an investment strategy used by our firm.
Planning with Blue Rock Financial Group
Blue Rock Financial Group is ethically and passionately invested in the short- and long-term financial health of clients. We specialize in fee-based financial planning and investment management for business owners and individuals. As fiduciaries, ensuring clients receive maximum value without being inundated by high, costly fees is our mission. Our philosophy is rooted in advice first, evidence-based investing.