![]() ![]() ![]() Let’s say your home is underinsured and it sustains damages in excess of your insurance coverage. The crucial issue here is ensuring real risks are insured at the right level. The most common insurance policies are auto, home and umbrella. As an HNWI, protecting your portfolio from having to pay for expenses that can be properly insured is critical. Insurance and risk managementĪnother important consideration is having the right insurance for various situations. I don’t believe in letting the tax tail wag the dog, so investors should lead with building portfolios, but being tax sensitive can help you avoid paying unnecessary taxes. Or you can evaluate if you are in the right tax bracket to do Roth conversions from your pre-tax accounts (e.g. If an investor in a high income tax bracket wants to invest in an asset that produces high ordinary income returns, they have the ability to use funds in an IRA or other tax-sheltered account that might be better than defaulting to using after-tax money.Įstate Planning Lessons We Can Learn From Elvis’ Mistakes Paying attention to your tax situation and how certain investment strategies impact you from year to year is quite important.Īs an example, look to place more tax-inefficient investments in accounts that defer taxes for a period of time. In many cases, people on their path to becoming a HNWI have a much more complex tax return than someone with investment assets and receiving Social Security.Īnother aspect to employ here is how one manages a taxable portfolio. Just because someone may be considered HNWI, doesn’t necessarily mean they have a complex tax return either. This is a person who can help prepare tax returns, advise and develop strategies to help make sure you are taking advantage of opportunities within the tax code. It is critical for HNWIs to add a tax professional to their advisory team. This doesn’t mean taking a portfolio from 100% invested to 100% cash and trying to time the market it means using rebalancing and/or reducing investment position sizes to keep the portfolio on target with the acceptable level of risk being taken. Thus, we must manage portfolio risks, too, which could include having a rules-based approach to reducing risk taken at certain points and being more protective for a period of time. As mentioned, there are certain points in a person’s financial life phase where significant setbacks can take them off course and jeopardize reaching their goals. I also see risk management as an important part of diversification and long-term investing. In most cases, I suggest an even longer time horizon. Anytime you are investing in stocks, bonds and alternatives, I usually stress staying invested for a minimum of three to five years. The other part of investing is having the right time frame in mind. However, it is a good practice to avoid permanent loss of capital. This isn’t a guarantee you will not have down years. HNWIs should consider being highly diversified and owning many different types of investments in their portfolio to help mitigate this type of outcome. If a person starting out on their financial journey and beginning a career invests $10,000 and suffers a 50% loss, their ability to earn that $5,000 back over a working career should be doable. That’s $500,000 and a significant amount to try to earn and save again. For example, let’s say a person is approaching retirement with $1 million, and they lose 50% of it. Many HNWIs have hit a point in life with their pool of money where taking a large step back would result in relatively large dollar losses that would take a very long time to earn back. If there is a setback or significant loss, the idea is that you would have time to make it up, and it was with money that didn’t jeopardize your well-being indefinitely. This could be starting a business or investing in only a few areas. If you’re getting started on your saving and investing journey, you will likely have the ability to concentrate your investment funds.
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