Have you ever stepped away from the daily grind, even if just for a brief moment, in an attempt to figure out what is the true purpose of all that wealth that you’ve been accumulating? After all, surely there’s a point to all that tireless work you’ve been doing over the years, if not decades, right?
As you get older – possibly with that first glimmer of retirement in sight – those profound, “big picture” questions surrounding your financial life become more pressing, and possibly even more so should you have a family, a business and/or heirs to whom your wealth will eventually be passed on.
That said, you might not be too familiar with the next steps to take to realise your financial goals and most effectively create, preserve and transfer your wealth. That’s where wealth planning comes in, a formal process you can undertake with the aid of holistic wealth management professionals to help you achieve your financial dreams and live a life that aligns with your own individual values.
What is Wealth Planning?
You are your own person. With your own unique dreams and your own financial goals to achieve during your time on this planet. But you may also not know enough about taking the best, most informed decisions regarding your wealth at different times in your life to effectively go about it.
Wealth planning seeks to build out a comprehensive, dynamic and forward-looking strategy to achieve those goals.
If you’re an entrepreneur, then chances are you already have experience in creating roadmaps to determine the optimal next steps over the coming quarters and years for achieving ultimate business success in the future. Think of wealth planning, similarly, as the roadmap for building, preserving and transferring your wealth, with a capable wealth advisor by your side to provide the technical expertise for building your financial legacy.
And it’s a detailed, comprehensive plan. Indeed, wealth planning invariably requires holistic analysis of all areas of your financial life – and thus encompasses a large swathe of relevant factors including major life events such as retirement and business succession; financial goals for you and/or your family such as charitable giving and buying a home, and key plans for the future such as international travel – in order to lay out a complete picture of that financial roadmap.
In more recent years, holistic wealth planning has also increasingly sought to ascertain your own unique values, behaviours, beliefs and worldviews to finetune and personalise that plan even further, and thus more intricately serve you as an individual.
A sound holistic wealth planner also recognises that your needs and goals change and evolve with every passing year. With lots of time to play with during your early years, for instance, you probably won’t be worrying too much about preserving the value of your assets. But as you inch closer to retirement, protecting the fruits of your hard work becomes progressively more important, before it becomes time to think about retirement and passing on your wealth. Which brings us nicely on to…
The 3 Phases of Wealth Planning
Advisors often formulate meaningful wealth planning strategies through the lens of three key life stages:
1. Wealth Creation
The process of accumulating assets over time to meet your current and future needs – and thereby build financial security – wealth creation is also known as the “building” or “accumulation” phase.
This phase is where you generate significant wealth, typically during your working years, to build a robust financial foundation to support your life plan. Wealth accumulation is thus mostly characterised by earning, saving and investing.
Wealth creation also tends to consume much of our working lives in our pursuit of building as much wealth as possible. And with decades of time on your side, you have hugely significant opportunities to lay the necessary groundwork for your wealth goals in this phase.
2. Wealth Preservation
All that hard work should then come to fruition through an effective preservation strategy that protects your assets in the face of a myriad of potential risks and claims on your wealth. As such, this phase of wealth planning covers strategies you can take to maintain or continue growing the value of your wealth to ensure your current and future lifestyle is not unduly threatened. This is invariably carried out using a solid risk management plan that prevents you from falling back into the accumulation phase.
If you still have significant investments in play, the potential for losses from financial market volatility is a key financial risk to address during the wealth preservation phase. All investments bear at least some risk component which means that risks to your overall wealth are simply inescapable. And still having high-risk investments in later life may inflict untold losses on your accumulated wealth, such that retirement could end up being an unnecessarily painful time.
But through a formidable wealth plan which contains a wealth preservation strategy that defines your approach to risk from the outset, you can manage that risk to
- minimise those potential losses, and
- strike the right balance between risk and reward.
With that in mind, a formal asset allocation plan is commonly advised as a sound approach to reducing market risk. By apportioning your investments across various asset classes and maturities, this concept ensures you “don’t put all our eggs into one basket.” In other words, by spreading out your investments across, say, the bond, precious metals and real estate markets, your portfolio can still thrive if/when your riskier stock investments suffer in the event of a market crash.
Closely intertwined with asset allocation is the concept of diversification; indeed, the two concepts are often used interchangeably. But diversification involves a more scientific methodology towards portfolio construction, one that sees assets included that have low correlations to each other such that if the price of one asset declines, the price of another asset is highly likely to rise to offset your losses and thereby minimise the overall risk of dramatic losses for your portfolio.
Including different asset classes (such as equities, gold, bonds and commodities) is just one diversification method. You can also diversify the industries of your stock investments, as well as vary up the geographical location of your investments.
You can further bolster the power of your risk management strategy through regular, periodic portfolio rebalancing. As our lives change, so too do our needs, preferences and goals. A regular portfolio rebalance will make the necessary adjustments to your investment allocations to reflect those changes, as well as to continue minimising risk and optimising returns.
This process becomes even more essential for protecting your assets against extreme market stress. Asset crashes and “black swan” events – much like the February-March 2020 collapse amid the global COVID-19 pandemic outbreak, or the 2007-09 Global Financial Crisis – cruelly exposed those investors who did not update their portfolios (say, away from equities and into safer bonds and precious metals), often resulting in excruciating losses. By monitoring, updating and rebalancing, however, many were also able to avoid the bulk of that financial pain.
A comprehensive insurance policy is also worth investigating for wealth preservation. Be it life insurance to fund your future goals or replace income following an unexpected life event; disability insurance should you experience long-term damage to your physical health; or liability umbrella insurance for going that extra mile in protecting your assets, income and/or investments against potential damages.
3. Wealth Transfer / Distribution
What have all those accumulation, saving and preservation plans been for, in the end? For many, simply having the means to take care of oneself and/or one’s family during retirement is the ultimate financial goal. It might also be for taking that once-in-a-lifetime world cruise, paying for your children’s education, or making philanthropic contributions to your favourite charities.
For others, the answer is about building generational wealth – that is, planning for wealth to not only meet your needs in your mature years, but also ensuring you can efficiently pass wealth on to the next generation. Indeed, the intergenerational transfer of wealth is a crucial and often underappreciated aspect of financial planning.
Estate planning covers this aspect for your own personal wealth plan. It stipulates how you will distribute your assets to your family members, and possibly other important parties in your life such as business colleagues and charitable organisations. A comprehensive estate plan can also help to protect beneficiaries of your wealth against threats and claims from creditors.
Again, the pandemic illustrates the crucial importance of estate planning. With people all across the world dying from the virus in large numbers, many felt the urgency of having an estate plan in place as their own mortality became increasingly apparent. According to a survey of 2,600+ American adults for the 2022 Wills and Estate Planning Study from Caring.com, an online senior care platform, a whopping 50% more young adults (18-34 year-olds) had estate planning documents in 2022 compared to before the pandemic.
Compared to opinion in South China Morning Post, the prevailing taboo surrounding death in Asian cultures has hindered progress in estate planning. This reluctance to discuss and prepare for the inevitable often leads to unintended consequences, such as protracted legal battles among heirs and the erosion of the deceased’s intended wishes. This cultural aversion to planning for the end-of-life stands in stark contrast to societies where these preparations are more commonplace.
While Americans are more likely to engage in estate planning, even with modest assets, the Asian population remains largely apathetic due to cultural taboos and misconceptions. The COVID-19 pandemic has catalyzed a shift in mindset among younger Americans, highlighting the importance of preparedness.
This disparity presents a significant opportunity for estate planning professionals to educate and guide Asian clients towards the importance of safeguarding their legacies and protecting their families’ futures.
Business Legacy, meanwhile, relates to your plans for the business after you step down. This involves strategically transferring ownership and control to an associate, colleague, family member, or external entity through Succession Planning or Business Exit.
- Succession Planning: This refers to the process of identifying and developing potential successors within the organization, our associates or family member to assume leadership roles.
- Business Exit: This encompasses various strategies for transferring business ownership, such as selling to an external party, merging with another company, or conducting an initial public offering (IPO).
Entrepreneurs pour their heart and soul into building thriving businesses, often envisioning not just financial success but also a secure future for their families. However, a common oversight can turn this dream into a nightmare.
Imagine the worst-case scenario: your life’s work fragmented into small, uncontrollable shares, or your business facing uncertainty due to a lack of a succession plan. These challenges underscore the critical importance of business legacy planning.
By proactively safeguarding your business and family interests, you can ensure a smooth transition and preserve your hard-earned success. Let’s work together to protect your legacy.
Ultimately, therefore, wealth transfer is about ensuring your accumulated wealth remains secure beyond the end of your lifetime.
Holistic Wealth Planning is the Winner
Again, we cannot emphasise enough the importance that a holistic, “full-spectrum” approach to wealth planning plays in delivering the most complete wealth plan for your needs. Confining the definition of ‘wealth’ to merely finances and investments alone ignores the dozens of additional factors that can affect – and contribute to – your ultimate goals.
Holistic wealth advisors thus seek to cover all of the bases that are important to your financial life and wealth goals, which means a wide range of services must be offered in-house. Family offices are well versed in this service provision. These private firms that provide bespoke wealth management services to families are now increasingly broadening their suite of offerings to reflect the expanding range and complexity of families’ wealth needs. Trust services; environmental, social and governance (ESG) factors, and technology are just some of the key themes that demonstrate this holistic approach.
Gaining a deeply personal understanding of your goals, your dreams, your fears, your needs, and your behaviours thus becomes a non-negotiable for not only developing a winning wealth plan, but also for making necessary adjustments and refinements to the plan over time, as and when necessary. Indeed, holistic advisors will revisit your plans more frequently than other advisors do to remain abreast of your unexpected and expected life changes.
ProActive, not ReActive,
Secured, not Stressed,
Grateful, not Regretful.
Love Inspires, Legacy Endures.
