Key takeaways
Rising interest rates, high inflation and market volatility mean it’s more important than ever to have a family wealth-preservation strategy.
Wealth preservation strategies include having a financial plan, an emergency fund, investment diversification and insurance.
You’ve worked hard to build your net worth, so protecting your wealth is always top of mind. In today’s economy, however, it may feel especially challenging. With interest rates rising amid unpredictable markets and overall economic uncertainty, it’s more important than ever to have a comprehensive financial strategy in place.
“Volatility in the markets and in the world is driving people to seek havens,” says Russell St. John, Wealth Management Advisor for U.S. Bancorp Investments. Protecting your wealth requires a combination of strategies. Working together, these six strategies – including a well-funded savings account, diversified investment portfolio and insurance – may help preserve your wealth in a challenging economic environment.
1. Create a financial plan to protect family wealth
It all starts with a plan. An experienced financial professional can work with you to identify your goals and recommend actions to help you work toward reaching them.
“My job is to get to know where my clients stand financially today and where they want to be in the future,” says St. John. “They may say, ‘I have to pay my bills today, but my wish is to buy a house on a lake or leave assets to my favorite charity.’ The intersection of those two things is the basis for a plan.”
If you already have a financial plan in place, take time to review it. It’s important to evolve your plan as your life changes and as you age. When you’re young, you've got lots of time and don't have to worry as much about volatility, says St. John. But as you get closer to retirement, your assets require greater protection.
2. Save for emergencies or large purchases to protect family wealth
Having money that’s earmarked for emergencies or future spending can help you better manage both unplanned events and your day-to-day cash flow. Financial professionals often recommend having three to six months of living expenses on hand in a savings account, so you aren’t forced to prematurely withdraw money from a retirement account or certificate of deposit (CD).
“There are risks you can control and risks you can't,” says St. John. “We can adjust your portfolio based on your risk tolerance, but we can't control your furnace dying or a large out-of-pocket medical expense.”
3. Diversify your investment portfolio to preserve wealth
Having tools in your portfolio that “zig” while others “zag” can help minimize the impact of market volatility. Diversification means not putting all your money into investments with the same risk class, and it can work on several different planes, says St. John.
“Within bonds, for example, you can diversify across types of bonds or industries,” he says. “You might buy some from the financial industry, some in technology and some industrial. If one sector of the economy weakens, not all your investments will be subject to that particular weakness.”
Diversification also protects against concentration risk. For example, having half of your investments in your company’s stock can put your retirement money in jeopardy if the stock drops.
4. Invest in insurance to protect family wealth
Annuities as well as life, disability and long-term care insurance can help protect your assets from unexpected changes to your family, career and health.
“People traditionally think about insurance as a way to protect your family, and that’s more applicable when you're young and term life insurance is inexpensive,” St. John says. “As your assets and your family grow, permanent life insurance is a good diversification play.”
For example, some life insurance products can also be used for long-term care. “If you need the money during retirement, you can the cash value for that,” says St. John. “If you pass away, your family is protected. And if you end up needing a long-term care support, your family doesn't have to worry about paying for it because you've got a plan.”
5. Be tax smart to preserve wealth
Thoughtful planning, from a tax diversified investment portfolio to a charitable giving strategy, may help you reduce your tax liability.
“Financial planning is holistic in nature,” says St. John. “Part of it is investment management, but it also involves working with your tax and legal professionals to make sure that everything ties together.”
St. John works with clients to design investment portfolios with tax sensitivity in mind. For example, annuities can be a good tool, as they can grow tax deferred. Other opportunities for tax savings include Roth IRA conversions, which allow you to convert a traditional tax-deferred IRA into a Roth IRA, paying the taxes today while rates are low.
“When you put money into a Roth IRA, you won’t pay taxes on it again and you won’t be subject to required minimum distributions in retirement,” says St. John.
6. Have an estate plan to leave a legacy and protect family wealth
A will, a trust and other estate planning documents can help safeguard your wealth for your family and the causes you care about. For families who have a small number of assets, a will might be fine. But if your family has more complex needs, or you have a business or investment property, it's important to work with an estate planning attorney.
“If your estate plan isn't clearly defined, your assets could end up in probate and the courts might decide where they go,” says St. John. “Estate planning can also help on taxation and transfer of assets.”
Wealth preservation strategies such as the six outlined are best handled with an experienced team of wealth specialists. Learn how we can help you protect the money you’ve worked hard to earn.
