From Accumulation to Preservation: Wealth Management Solutions for Different Life Stages

Wealth management changes as we progress through various stages of life. Our financial needs, goals, and challenges evolve. You will need different strategies for each stage.

Starting Out

In the early years, responsible financial planning can make the most significant impact.

Young investors have something priceless: time.

They need to harness that time to plan intelligently for the future. This means budgeting and

understanding the power of compounding and the fundamentals of investing.

Budgeting

Budgeting is essential for young investors because it helps create a realistic plan for managing expenses and savings. By tracking income and expenses, they can better understand their financial situation and identify areas where they may be overspending. Budgeting can help young investors establish good financial habits early, benefiting them throughout their lives.

Budgeting used to be an arduous task, but that is no longer true, thanks to technology. Budgeting apps can be a valuable addition to your budgeting process. These apps vary in the functions they offer. Most permit you to connect all your financial accounts, track expenses, and establish financial goals.

Some apps (like PocketGuard) are best for those who want to track spending. The goal of this app is “to help customers spend less than they earn.”

Monarch is a robust personal finance app that helps you track your spending, create a budget, and set financial goals.

YNAB (You Need A Budget) is a paid app that helps you create a budget and stick to it by tracking your spending and saving.

According to Forbes, “the best budgeting app is one you’ll actually use.”

Compounding

Few understand the enormous power of compounding, which rewards younger investors the most. Here is the only example you will ever need to appreciate how important it is to start investing early.

When a penny doubles for 30 days, the ending value is $5,368,709.12.  But on day 15, it is only worth $163.84.

Finding any investment that will double daily is highly unlikely, but small savings appropriately invested can turn into meaningful sums over time and improve your odds of success.

Investing

The sooner you learn these basic principles of investing, the more likely you will have a financially secure future:

Focus on your asset allocation (the division of your portfolio between different assets, such as stocks, bonds, and cash), low fees, and global diversification of assets across different countries and regions.

Do not engage in stock picking or market timing.

Do not attempt to “beat the market”. Instead, capture the returns of broad benchmark indexes.

Mid-Life

For those in mid-life, wealth management strategies include diversification of assets to mitigate risks and tax-optimized investments.

Tax-optimized investments are investment strategies designed to minimize the impact of taxes on investment returns. The goal is to structure your portfolio to maximize after-tax returns while reducing the amount of taxes you pay.

Examples of tax-optimized investing include accounts like 401(k)s or IRAs, using tax-efficient investment vehicles like exchange-traded funds (ETFs) or index funds, and employing tax-loss harvesting strategies to offset gains with losses.

By optimizing your investments for taxes, you can increase your investment returns and keep more of your hard-earned money.

Your asset allocation should shift to increase the percentage of stable, fixed-income assets (like bonds) and reduce stock exposure.

This is also the time to focus on estate planning to ensure your wealth is distributed according to your wishes after your death.

Approaching and During Retirement

As retirement approaches, wealth management strategies shift towards preserving and transferring wealth to heirs and philanthropic endeavors. Here are some key considerations:

Wealth transfer: Engaging in wealth transfer strategies ensures that assets are passed on to heirs in a tax-efficient manner. It is also an opportunity to have important family conversations that can prepare the next generation of your family for your wishes and what they may inherit. Otherwise, there could be added risk that your beneficiaries experience the “third generation curse.”  

Philanthropic endeavors: Establishing donor advised funds, charitable trusts or foundations can be a fulfilling way to utilize wealth for societal good. When done with the help of a qualified tax professional, charitable giving can minimize your overall tax liability, reduce your capital gains liability, and reduce your estate tax.

Reviewing and rebalancing: Continuously review asset allocation and rebalancing to ensure the portfolio aligns with current needs and market conditions.

The Importance of Reviews

Reviewing your wealth management strategies at each phase of your life is important because your financial goals, needs, and risk tolerance change over time.

When you are younger, you may be more focused on accumulating wealth, while in retirement, your focus shifts towards preserving and transferring wealth to heirs or supporting philanthropic causes.

Reviewing your wealth management strategies regularly with your wealth advisor can help ensure that your investments align with your current needs, goals, and risk tolerance and that you are on track to achieve your financial objectives.

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