It can be readily accepted that people want to keep their accumulated wealth for their future use with any wealth not used going to their heirs. Simply put, they want to preserve their wealth.
There are two steps involved in doing this. The first is providing superior risk adjusted returns over time to wealth while seeking to reduce levels of volatility in the portfolio. The second is to bring your customized estate plan from paper to reality.
To many, preservation of wealth is depositing available funds into savings accounts and certificates of deposit and leaving it there until used or until their date of death. Not only may this be an inefficient way to leave money to heirs, but doing so puts one in a position of relying on fluctuating bank rates. Wealth is only preserved if the after-tax rate of return on these funds is greater than inflation. However, if one considers taxes and looks at historical rates of inflation and compares that to historical rates of returns for savings accounts and certificates of deposit, the result is that “buying power” or wealth diminishes over time.
Many people believe that future inflation rates will be higher due to a combination of government deficit spending and the Federal Reserve raising the money supply. Meanwhile, savings deposit interest rates are at or near historical lows. What once was a significant nest egg at the beginning of retirement is reduced to what may not be enough egg left to support your lifestyle in the middle to end of retirement. Again, preservation of your wealth is dependent upon earning returns after taxes being greater than inflation rates.
In providing risk adjusted returns, a good local adviser can do due diligence finding institutional quality managers throughout the country that complement each other over various market cycles. This provides value to your portfolio as it can reduce the risk level of your portfolio when done properly. It takes your adviser using independent financial strategies and third party research, screening, and ongoing monitoring of the institutional quality money managers throughout the country to put together your flexible, risk-adjusted portfolio.
Even successful retired business persons who have one or two good ideas about investing and who also daily monitor their investments can have problems providing returns to preserve their own wealth.
They can become trapped by utilizing only one idea. For example, self-managed stock portfolios which now require consistent monitoring may not be understood by heirs nor even a successful part of a well-customized estate plan.
Without examination and study of your entire position, completing professional planning may be problematic and costly trying to leave money to heirs in any form. When examined together, identification of potential trouble spots can surface in both investment accounts, types of investments and trust papers. Ninety-five percent of estate documents reviewed by our office in light of investments for persons with accumulated wealth have major issues.
There also is risk to wealth preservation for survivors from future divorces, liability suits and creditor and/or bankruptcy issues. Preservation of your wealth encompasses making your trust intentions reality.
Lea Smith Johnson, a certified financial planner, can be reached at (941) 755-0975 or (941) 462-2731.