Wealth management strategies refer to a broad range of financial planning tools and plans used to help individuals effectively protect, manage, and grow their wealth. These strategies can vary depending on various subjective factors like one’s goals, time horizon, risk tolerance, and financial standing. This article offers a guide to various common wealth management strategies to help you understand their meaning and significance.

Effective wealth management strategies to build and preserve your wealth

Wealth management strategies are as diverse and numerous as the options available on any online marketplace. Here’s a list of the most common wealth management strategies used to ensure a secured financial future:

Diversifying your investment plan

Based on your risk appetite and investment goals, wealth management advisors help you curate a diversified investment strategy, allocating funds to a varied mix of assets. Creating a diversified and balanced investment portfolio helps protect your wealth against market fluctuations since asset classes react differently to market changes. For instance, assuming you are a moderate risk investor, you may wish to allocate 50% of your portfolio to high-return high-risk equities, while investing 30% in stable debt instruments like bonds, and the remaining 20% in fixed-income assets like NBFC FDs for assured high returns. This strategy allows you to counteract the negative performance of one asset with gains from another asset, resulting in more stable returns over time. Moreover, building a diversified portfolio also allows you to tap into the growth opportunities in various sectors and industries, becoming a better approach to wealth building and preservation.

Optimising your portfolio for tax efficiency

Effective wealth management focuses on helping individuals minimise their tax liability to preserve their wealth. This goal is achieved by strategically using tax-saving investments, claiming deductions available, and carefully planning when to sell investments. One key strategy used for tax-efficient investing is capital gains management. The long-term capital gains tax on equity mutual funds stands at 12.5%, while short-term capital gains tax stands at 20%. Therefore, instead of selling your units within one year, you can hold the investment for at least 12 months to ensure it qualifies for a lower LTCG tax. Similarly, investing in tax-saving instruments like PPF, ELSS funds, NSC, life insurance, and medical insurance can also qualify you for deductions under various sections of the IT Act, lowering your overall tax liability.

Managing risks effectively

Wealth management focuses on risk mitigation through insurance. Insurance safeguards your wealth corpus against potential losses from accidents, illnesses, or property damage. Just as life insurance ensures financial support for your dependents in your absence, health insurance plans offer medical expenses coverage to avoid depleting your finances. Similarly, property insurance protects your valuable assets. In fact, insurance can not just mitigate risks, but also lower your tax liability by offering various deductions. Moreover, the death benefit payout from life insurance plans is also tax exempt u/s 10(10D) of the IT Act, ensuring a tax-free corpus for your family in your absence.

Prioritising debt management

Debt management is yet another key strategy used in wealth management. Paying off various outstanding debts such as mortgage, credit card debt, and student loans is critical for anyone seeking to effectively manage their wealth. Clearing debt in a systematic way allows you to free up interest payment expenses and use the same to further grow your wealth corpus and meet your financial goals.

Planning for retirement

Another common wealth management strategy is focused on retirement planning. This strategy estimates how much you will need in retirement to lead a comfortable life and then outlines a comprehensive plan of action. Since the goal is to ensure enough financial resources for your golden years, retirement planning strategies review various retirement plans, pension plans, and government-backed retirement schemes to understand the perfect fit that offers good returns and tax benefits.

Focusing on estate planning

Planning for how you want your assets to be distributed after your death is critical to ensure that your wealth goes to the right beneficiaries. Drafting a comprehensive estate plan may include creating a will, setting up trusts, or buying life insurance. Estate planning involves compiling an inventory of the assets like real estate, investments, business and personal property, etc. This is followed by the identification of beneficiaries and the selection of will executors or trustees (as the case may be). The last step is drafting legal papers like power of attorney, wills, and trust documents. A good estate plan will help you preserve your wealth for future generations while lowering estate taxes.

Conclusion

You can utilise the wealth management strategies outlined above to better plan investments and manage your accumulated wealth to ensure goal fulfillment and lower taxes. However, you should remember that wealth management is about taking a holistic approach. Therefore, you can combine the various wealth management strategies listed above to suit your own unique goals and objectives.