How Do You Create Lasting Wealth?05-04-2023 |
When it comes to creating lasting wealth, for most people, steady, ongoing work is the foundation of their wealth. Career success and a good salary, or building and growing your own business, is the means to a lifestyle you enjoy now and the promise of a stable financial future.
For others, an inheritance, a windfall from an investment or employee stock, selling a business, or even winning the lottery is the source of wealth.
But no matter how high your salary, successful your business is, or big the windfall – is it enough to create lasting wealth? How about generational wealth?
Your goal is to have enough to live the life you want and pass down wealth to provide ongoing security for your family. But what do you need to think about besides money?
Black swan events happen, markets go through extended downturns, and unexpected life or job issues can derail plans.
That’s where financial planning comes in. We break down some of the things you need to think about on the journey to lasting wealth.
Start by Creating Your Own Definition of Wealth
Rather than focusing on a number, try defining wealth as a lifestyle. This gets you closer to understanding what you need and when you need it. Once you start to understand what your goals are, you can build a financial plan that balances your lifestyle now with the goals you want to achieve in the future. For older generations, working and saving until retirement at age 65 was the norm. Younger generations may have different goals or may have multiple goals and therefore may want to achieve them sooner.
- Early retirement
- One spouse stops working
- Start a business
- Buy a second home
- Pay off all debt and be able to self-fund kids’ college
Make Informed Choices
The word that resonates most strongly with investors today is flexibility. Whatever the individual definition of wealth is, it often starts with a desire to have more control over time and work.
Understanding the trade-offs that are involved can consequently help you make decisions that are right for you.
For example, if retiring early is the goal, a common approach is to sacrifice lifestyle and time in the short term in favor of reducing expenses, increasing saving, and maximizing income through work. There’s even a name for this – it’s called the FIRE movement. However, there’s a limit to how long you can make sacrifices and continue to feel satisfied by your life in the moment. Instead, there are several “levers” you can pull to create a better balance:
- Extend your retirement age
- Re-evaluate risk in your investments
- Reduce high-interest debt and shift to lower-interest debt
- Optimize tax efficiency
This is just one example, so there’s no one right answer. Being thoughtful about your goals, then exploring different scenarios, and taking into account potential benefits from the financial planning toolkit can put you on a path to maximize your own financial independence and flexibility.
Expand Your Options
The first step to lasting wealth is to invest as early and as consistently as possible. Ensuring that you are maxing out tax-advantaged retirement savings, and taking advantage of health savings accounts and 529 plans can then put money to work and reduce your tax burden.
Expanding beyond the options available in retirement plans by putting after-tax dollars into a taxable account can also help you diversify your portfolio. This allows you to refine your risk profile and potentially boost return.
Control Your Risk
Ensuring that you have lasting wealth means protecting it. A review of your insurance coverage that takes into account potential liability is critical. Depending on your lifestyle, you may want to explore an umbrella policy. This provides additional coverage above the limits on your existing insurance policies.
Start Estate Planning Now
Ensuring that your wealth can provide for your family for decades to come is something you should do proactively. A good estate plan is both thoughtful and efficient. It ensures that your wishes are carried out, and it preserves as much of your estate as possible for your dependents, not the tax man. For many families, a trust can simplify the transfer of assets. Trusts also keep your estate private, and can be customized in ways a will cannot. You also don’t have to relinquish control of your assets.
The Bottom Line About Creating Lasting Wealth
Achieving lasting wealth requires more than just asset growth. Understanding your goals, the trade-offs in terms of choices, and how you can incorporate financial planning tools into your situation can help you protect and grow your wealth for generations to come.
Let Hennion & Walsh Offer a Second Opinion
Curious to learn more? Our unmatched client experience will give you peace of mind. Just as you may seek a second opinion about your health, we believe successful investors can gain value and peace of mind by getting a second opinion on their financial health. So, whether you’re worried about today’s uncertain economic environment or looking for increased peace of mind, we can help. Get a complimentary second opinion on all your retirement accounts not held at Hennion & Walsh today!
Hennion & Walsh Experience
We have advisors, planners and portfolio managers that can collectively analyze your situation through the lens of their respective disciplines. Each member brings valuable insights to apply to your situation. Whether you are looking for income strategy guidance or growth strategy guidance, a second opinion of all your retirement accounts not currently held at Hennion & Walsh could be beneficial to your financial health.
Hennion & Walsh Asset Management currently has allocations within its managed money program, and Hennion & Walsh currently has allocations within certain SmartTrust® Unit Investment Trusts (UITs) consistent with several of the portfolio management ideas for consideration cited above.
Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.