There are a lot of ways to approach wealth management, and many people instantly focus on short-term goals. With a short-term focus, the priority is on growing wealth as quickly as possible, but this often happens at the expense of legacy protection. The thrill of building wealth can be rewarding – and that’s the case regardless of how that wealth is built, from market gains to a successful business exit – but these rewards can be quickly overshadowed if your efforts aren’t future-proofed.
To ensure rewards remain and truly pay off, you need to have a broad, long-term wealth management vision. Without long-term planning and a clear management plan, there’s a risk of wealth being lost just as quickly as it was built.
Wealth Management: The Problem with a Short-Term Focus
With a short-term focus, economic crashes, policy changes, inflation and technological disruption are very real risks. Plus, once you add family dynamics, taxes and succession into things, it’s clear that short-term success doesn’t cut it. There’s too much at stake, and it’s much more important to have a long-term wealth management strategy.
Diversification: The Key to Successful Wealth Management as a High-Net-Worth Individual
One of the most common wealth management approaches amongst high-net-worth individuals is diversification. There are no guarantees when you’re building wealth, especially if you’re relying on selling, investing and business growth. But, that doesn’t mean you can’t have strategies in place that increase the chances of success.
To properly protect your legacy, you need to avoid being overexposed to any single risks. For business owners, a common mistake is placing all of personal wealth into the business, putting it at risk if the business fails to perform. When the business thrives, so do you. But if it fails or faces disruption, so does your financial security.
Diversification isn’t just a safety net, it’s a growth strategy. It’s a way to protect your funds for the future. By allocating wealth across multiple assets and revenue sources, high-net-worth individuals can reduce volatility, increase stability and position themselves for long-term resilience.
Diversifying Wealth Across Various Asset Classes
If there’s one thing that high-net-worth individuals need to do, it’s diversity their wealth across various asset classes. This builds a portfolio that balances risk and reward, ensuring you have something to fall back on if one of your assets fails. For example, equities are good for long-term capital appreciation, but they are subject to volatility. Similarly, real estate offers income and appreciation, along with tax advantages, but you can’t predict the property market.
By spreading investments across different asset classes, you reduce the likelihood that a single market downturn will significantly impact your overall wealth. It’s all about spreading the risk, as the chances of something going wrong with all of your assets is slim. It’s also a good idea to build geographical diversification into your wealth management strategy, as instability can affect domestic markets, but diversifying into international markets can help balance that risk.
Diversifying Revenue Streams
For high-net-worth individuals, revenue stream diversification isn’t limited to your business. It’s about making sure there are multiple sources of income, both active and passive, so you’re never reliant on one to maintain your legacy.
Active income refers to salary or profits from everything from your business or advisory roles, to consulting and speaking engagements. Passive income is money you earn without ‘working’ in the same way. For example, income from renting out properties, dividends from stocks, interest from investments and income from intellectual property. Revenue diversification not only increases cash flow, but it also adds resilience to your wealth structure. If one revenue stream slows or stops, others can sustain your legacy.
Build Your Wealth Management Team
Preserving your wealth is a team effort. Regardless of how financially savvy you are, it’s not something you can successfully do alone, not if you want to protect your legacy as much as possible. You need to build a wealth management team, made up of experts who know what they’re doing. No one advisor can cover all the complexities of modern wealth management.
Build a trusted team that works together to create a detailed wealth management strategy that ticks every box. This includes a wealth advisor, who designs and monitors your financial plan, and a tax expert, whose job it is to maximise tax-efficiency and anticipate future liabilities. It’s also a good idea to have legal guidance when it comes to estate management, as they can help you to structure your legacy in a way that makes the most legal sense. Alongside these experts, an accountant ensures accurate reporting and compliance, giving you one less thing to worry about.
Your Legacy and Wealth is Worth Protecting
The wealth you’ve built is an impressive accomplishment, but its true power goes beyond the here and now. Whether you’re preparing the next generation, giving back through philanthropy or building a resilient investment portfolio, you need to make sure your wealth lasts. Short-term wins may bring satisfaction, but lasting impact comes from strategy, vision and a commitment to wealth management.
At The Directors Box, you can surround yourself with a trusted network of high-net-worth peers who have already navigated similar challenges, giving you access to invaluable insights, proven wealth management strategies, and insightful advice. Whether you’re planning for succession, diversifying your portfolio, or establishing your family legacy, the collective knowledge of our community is a powerful resource. Get in touch to find out more.
