Wealth Management: A Pathway to Financial Security
Financial security is the ability to cover your expenses, emergency costs, and retirement without incurring debt. Simply having access to a wealth corpus does not guarantee financial security. For instance, if you have just received an inheritance or substantial market gains, using them to shop on online marketplaces will not contribute to your financial security. Rather, effectively managing this wealth can help create a pathway to long-term financial security.
How does wealth management help attain financial security
1. Draft a personalised financial plan
Wealth management focuses on understanding the unique financial goals, risk appetite, and current financial standing of the individual. A personalised financial plan is developed based on these parameters, incorporating various elements of investment allocation, tax optimisation, and retirement planning.
2. Tailor investments to the long-term goals
Wealth management focuses on achieving the goal of financial security by creating an effective investment approach. Wealth managers work with clients to select and monitor investments that best align with their financial goals. The aim is to create a portfolio that doesn’t just offer short-term returns, but can withstand market fluctuations to ensure good wealth growth over time. To this end, wealth managers design diversified portfolios with a mix of assets, including volatile market-linked instruments like equities and bonds and stable instruments like NBFC FDs to ensure stability and lower concentration risks. They also monitor the portfolio and rebalance it periodically to ensure your investment strategy always stays aligned with changes in your life, goals, and general market conditions.
3. Manage financial risks
Managing risks to your wealth corpus is critical to achieve financial security. Wealth managers help you identify potential risks and offer strategies you can deploy to mitigate them. For instance, wealth managers can suggest portfolio diversification to include investments in international markets to hedge against the risks of India’s volatile equity markets and also tap into novel investment opportunities. Apart from such risks, you must also be prepared to handle other sudden emergencies like a sudden illness or critical illness diagnosis without worrying about destabilising your finances. Wealth management helps you stay prepared for such risks by creating an emergency fund and investing in life, health, and property insurance with appropriate covers.
4. Optimise taxes for wealth preservation
How much wealth you have accumulated directly impacts your sense of financial security. To best preserve your wealth corpus, you must plan taxes efficiently. Improperly planned taxes can result in rising liabilities, eroding your wealth corpus over time. By undertaking wealth management, you can strategise ways to effectively plan your taxes by investing funds in tax-advantaged accounts like pension plans, PPF, and NSC. Apart from choosing EEE or ETE investments, you can also structure your capital investments (selling the investment after 1 year for lower LTCG) in a way that reduces capital gains taxes. Other common tax-saving strategies include harvesting capital losses to offset capital gains, charitable giving, creation of HUFs, etc.
5. Ensure financial security for the future generation through estate planning
The purpose of wealth preservation is ensuring financial security for your future generations. Adopting wealth management strategies can help you plan your estate to ensure a smooth generational transfer of wealth through various legal instruments like wills, trusts, and succession plans. Since, the goal in estate planning is to minimise inheritance taxes, an experienced wealth manager can help you choose the right estate planning tool to achieve this objective.
6. Create a retirement plan for the golden years
Lastly, wealth management plays a key role in ensuring financial security in your retired years. In the absence of a steady income from employment, it becomes essential to ensure that your wealth corpus offers enough returns to sustain your lifestyle. Using wealth management services helps you get an accurate estimate of your retirement corpus. Professional wealth managers can help you calculate the living costs of retirement by considering inflation, health costs, and life expectancy factors. Accordingly, they can draw up plans to make strategic investments – that are both tax-advantaged and offer good returns – to ensure you enjoy financial security throughout your golden years.
Conclusion
When it comes to financial security, adopting wealth management strategies is crucial. Simple strategies to plan your investment, retirement, and succession can ensure that your wealth corpus remains intact and is passed on to the right beneficiaries. Similarly, adopting risk management strategies can help you mitigate the risks to ensure your financial security remains uncompromised.