High-Net-Worth Individuals (HNWIs) have a net worth of $1 million or more in liquid assets. In general terms, a high-net-worth individual is someone with substantial wealth and a mix of liquid assets, such as cash, stocks, and bonds, as well as non-liquid assets, such as real estate and privately-held businesses. HNWIs often have specific financial needs and goals, such as wealth preservation, tax efficiency, diversifying investments, and estate and succession planning for their wealth. Due to the complex and diverse range of their financial assets, these individuals also require specialized high-net-worth financial planners and personalized investment management tailored to meet their specific needs.
2023 may see several changes with respect to retirement plans, Social Security, etc., under the Securing a Strong Retirement Act of 2022 (SECURE 2.0). In addition to this, inflation, interest rates, and recession are also going to be considerable concerns for most investors. While wealth management for high-net-worth individuals may not be affected by Social Security benefits and 401k retirement plans compared to the average investor, the community still has to be prepared to tackle inflation, recession, and taxes like anybody else. Consider consulting with a wealth advisor who can guide you on how to preserve as well as increase your wealth in 2023.
Here are some high-net-worth wealth management strategies that can help high-net-worth individuals focus on their financial goals and create wealth in 2023.
HNW wealth management – Tips for 2023
1. Update your wealth management goals
Financial goals are dynamic and can change over time. Therefore, the first thing to concentrate on is setting the right wealth management goals for 2023. These goals can act as the road map for all future financial decisions for the year. Financial goals and circumstances can change significantly over time due to events such as marriage, divorce, the birth of children, job changes, and retirement. It is essential to take these changes into account and adjust investment strategies accordingly. Economic and market conditions are also likely to change over time, and investors may need to adjust their goals and strategies in response to these changes. Updating wealth management goals allows investors to stay up-to-date with market developments and adapt their portfolios accordingly. While updating goals, investors must also review the performance of their portfolio and make any necessary adjustments to ensure that the portfolio is on track to meet its latest investment objectives.
2. Rebalance your investment portfolio
The beginning of the year can be a good time to rebalance your portfolio and set things in order. Rebalancing refers to the process of realigning the portfolio’s asset allocation to reflect your current financial goals, risk appetite, and needs. This can be done by buying some assets and selling others to bring the portfolio’s allocation to a suitable weightage. Portfolio rebalancing also helps in diversification and maintaining the desired level of risk. Moreover, it helps to prevent large losses in the event of market downturns, as the portfolio is not heavily concentrated in a single asset class. In 2023, high-net-worth individuals can focus on portfolio rebalancing to take advantage of market conditions and opportunities. They can buy low and sell high to lock in gains. However, it is important to keep in mind the tax implications of their decisions. Selling an asset can trigger capital gains and therefore increase tax liabilities. Therefore, a careful assessment is essential to maximize the overall profit.
It is vital to note that regular rebalancing can be a way to enforce discipline and resist the temptation to make sudden changes to the portfolio in response to short-term market movements. The process of portfolio rebalancing compliments a long-term investment approach also, as the focus remains on the long-term goals and investors are not triggered by short-term events. Instead, they adhere to a regular, fixed schedule of rebalancing.
3. Keep a long-term investment approach
A long-term investment approach is vital for all investors, including high-net-worth individuals. A long-term investment outlook is critical in 2023, which is likely to experience inflation and rising interest rates. As markets turn volatile, staying invested for the long run can offer you several advantages, the primary one being the power of compounding. Compounding essentially refers to reinvesting your profits to generate even more earnings. When you follow a long-term investment strategy, the power of compounding offers you significant growth over time by giving your investments the time needed to grow and compound. A long-term investment approach also allows you to weather short-term market fluctuations and downturns. Short-term market price fluctuations can be alarming. However, over the long term, the market tends to move upward, and counter the temporary volatility. The longer you stay invested, the higher the potential for growth.
Long-term investment can also add stability to your portfolio, which can be particularly important for individuals with large amounts of wealth. It offers the prospects of growth along with the promise of wealth protection due to lowered risk and volatility.
4. Focus on high-net-worth asset management and protection
One of the things most high-net-worth individuals deal with is asset protection and management. Given the large size of estates, it can be challenging to protect all assets. Asset protection for high-net-worth investors can involve legal and financial strategies, as these individuals are generally exposed to potential creditors, lawsuits, and other types of risks. In 2023, high-net-worth individuals must focus on asset protection as much as wealth creation. This can be done by buying adequate insurance. Liability insurance, home insurance, life insurance, jewelry insurance, homeowners insurance, etc., are some ways to establish financial security for different assets. Since most high-net-worth individuals have businesses and considerable business income, it is also essential to set up a limited liability corporation to create a distinction between personal and business assets and liabilities. Further, individuals can segregate their assets into different categories and hold them in different accounts. This makes it more difficult for creditors to seize assets in the event of a lawsuit. It can also help to establish an Asset Protection Trust (APT). An APT can hold assets and protect them from creditors. Individuals can choose between domestic and foreign asset protection trusts. Domestic APTs are covered under the U.S. legal system, whereas foreign APTs, also known as offshore trusts, lie outside of U.S. jurisdiction. It is important to note that asset protection strategies, especially trusts, may vary by jurisdiction and are subject to change. Therefore, it is recommended to hire relevant financial advisors for high-net-worth individuals to determine which accounts, trusts, and strategies are most effective in protecting concerned assets.
5. Consider investing in alternative investments
Alternative investments can be a great way to diversify the portfolio and lower market risk. Alternative investments include all other types of instruments other than the traditional stocks, bonds, and cash asset classes. Some common examples include hedge funds, private equity, cars, cryptocurrency, art, real estate, coins, watches, and even rare whiskies and wines. Most high-net-worth investors have most of their money in listed equities. However, alternative investments can be a great addition, primarily for their non-correlation to equity markets. This will help in lowering risk and providing a hedge against volatility. Alternative investments also generally rise with inflation rates. As the prices of goods and services rise, assets like real estate, art, collectibles, cars, etc., also appreciate in value. For this reason, alternative investments may be able to generate higher returns than most other traditional investments. Private equity and hedge funds also have a great potential to fetch a high yield. This is why they make for an excellent diversification tool.
Most alternative investments make for excellent estate planning tools. They can be transferred to the next generations as heirlooms. Their value appreciates over time and helps protect the inheritors for a long time to come. However, these investments do present a high risk, which is why it is essential to be careful and understand their underlying cons before investing. For instance, they can be highly illiquid. The higher the price, the harder it can be to sell them, especially during an emergency. Some alternative investments are not regulated as heavily as traditional investments, which can increase the risk of fraud or mismanagement. For example, cryptocurrencies can be risky, and the recent FTX collapse is a testament to that. The FTX debacle had severe ramifications on the volatile crypto market and resulted in billions of dollars of loss. Alternative investments can also be complex to understand. However, specialized high-net-worth financial planners and advisors can help clients pick the right products.
Even with the high risks, alternative investments can offer brilliant rewards and are suitable for the high-net-worth community. With average investors also flocking to alternative investments, these can surely be of merit to high-net-worth individuals.
6. Pay attention to tax planning
Tax planning is another critical aspect of high-net-worth wealth management. High-net-worth individuals fall in the highest tax brackets, which can be concerning. However, there are several ways to lower the taxability. Charitable donations can be one way to do this. High-net-worth individuals can consider lowering their taxability by donating cash as well stocks to charitable trusts. This can be useful to avoid capital gains on the profits. Estate planning strategies can also help in lowering the tax. Options like lifetime gift exemption, creating trusts, etc., can be effective. Tax-advantaged accounts like Individual Retirement Accounts (IRA) can also be helpful in gaining tax benefits. Investors can decide between the Roth and the Traditional versions based on whether they want to pay tax now or after retirement on their withdrawals. Health Savings Accounts (HSAs) can be another suitable tax-advantaged account. Further, individuals saving for the higher education costs of their children can consider using a 529 college savings account. Many states may offer a tax break on 529 contributions. This can help in accumulating funds and saving tax. Tax-efficient Exchange-Traded Funds (ETFs) and mutual funds are also ideal to enhance tax savings. Further, high-net-worth individuals can rely on tax credits to lower taxes. For instance, the government offers a tax credit for installing solar panels in homes, adoption credits on adoption, child and dependent care credit, and many more.
7. Hiring high-net-worth financial advisors
High-net-worth individuals often have a more complex financial situation than the average person, with a more extensive and diverse portfolio of assets. Financial advisors for high-net-worth individuals have the right experience to navigate this complexity and create a comprehensive financial plan. Specialized advisors also have access to a broader range of resources and expertise that can help these clients achieve their financial goals. Moreover, they can offer customized advice suited to each client and their unique circumstances and objectives. Tailored advice can be helpful in various aspects of financial planning and wealth management, from estate and tax planning to investment and debt management.
High-net-worth individuals also have significant assets that require regular monitoring, management and fine-tuning to ensure they are aligned with their long-term goals. A financial planner can provide proactive management of the client’s assets and help to identify potential issues before they become problems.
High-net-worth individuals face unique challenges and opportunities when it comes to managing their wealth. It is crucial for them to stay informed about market conditions and economic trends, as well as to review and update their wealth management goals on a regular basis. Hiring a qualified and experienced financial advisor can be an invaluable asset in navigating these challenges and adopting customized advice and strategies. In an uncertain economic environment, with speculations of a recession and high inflation rates, it is more important than ever for HNWIs to have a sound wealth management strategy in place.
By staying informed, staying disciplined and working with a professional, high-net-worth individuals can feel confident in their ability to achieve their long-term financial goals. They also may consider hiring a financial advisor to help them navigate their financial concerns for the upcoming year. WiserAdvisor’s free advisor match service can help investors get matched to suitable advisors. All you need to do is answer a few questions based on your financial needs, and the tool will help connect you with 1-3 vetted and experienced financial advisors.