Wealth provides you with money that can be used to realise your financial and personal goals. It aids you in sustaining your life and remaining in good standing even when you are no longer employed. Wealth can get eroded, i.e., reduce in value, over time, if invested in the wrong or non-profitable avenues. Proper wealth management can help you plan your money better so that it continues to grow.
Key Takeaways
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Wealth management is a part of financial services that assists you in managing your money and provides you with advisory services.
Wealth management includes comprehensive guidance on finance, taxation, estate and legal. Your wealth manager can be your single point of contact who will collaborate with accountants, estate managers, and tax experts to design a holistic wealth plan.
Wealth management revolves around financial planning with a crystal-clear objective of offering better returns on investments. Some broad pointers on how wealth management works:
Your wealth manager will note your financial goals with specific timelines, if any.
By probing with a wide variety of questions, they will figure out your risk appetite.
Needless to say, you must provide details of how much money you want the wealth manager to “manage” or invest.
At this stage, your wealth manager will draft an investment plan recommending different asset classes, financial instruments, timelines, and allocations.
Taxation will always be factored in so that you get the best possible exemptions and rebates.
Once you approve the plan, your wealth manager will go ahead and execute the same.
The investments are monitored and modified if the need arises.
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The main objective of wealth management is to manage finances in a way that yields a great ROI, ensuring long-term financial security and peace of mind. This gives you the confidence to plan your future with clarity and purpose. Let’s deep dive into this.
The wealth management sector is poised to grow from $1.25 trillion in assets under management in 2020 to $3.43 trillion by 2030. - Allied Market Research
Wealth managers are incredibly useful for people who want the guidance of experts to grow their finances for some time. They are also important for people who need more confidence in their own financial decisions. Of course, with their importance, it is essential to find a wealth manager you know you can trust. Some tips and points to keep in mind when choosing a wealth manager are:
Choosing a wealth manager is one of the most important financial decisions. Your manager is expected to grow and protect your wealth, potentially for decades. Thus, it is important that you spend the time and effort to find the wealth manager you can trust and believe in.
There are several benefits of using professional wealth management methods. The margins of error reduce because the dos and don’ts are clear.
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Earning money, creating wealth, and managing wealth does not mean the same thing. Some points to note:
Here are a few pro tips for SMART wealth management:
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Financial goals, plans, and aspirations change as you traverse through the journey of life. Needs and wants are dynamic, and therefore, your wealth management plan should adapt to your life stage. Retirement is the final stage, and you most certainly do not want to enter it with inadequate money in hand. Adopting different strategies for different life stages is recommended:
Each of the strategies described above has corresponding investment options that can help you achieve the goals for that stage. Some examples of popular instruments for each stage are listed below:
The focus is clearly on getting above-average returns and building a strong base so that the power of compounding gives better returns in the medium/long run.
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Other than the diversified portfolios, you can also consider buying stocks directly. Stocks can offer huge value accretion over time as well as a possibility of dividend income. Investing in Gold ETFs, and REITs (Real Estate Investment Trusts) will also fall under this strategy. However, these investment options may not allow tax savings.
Consolidation is the mantra here. The degree of consolidation will increase as you progress through this stage and approach retirement.
National Savings Certificate (NSC): NSC is offered by the Post Office and is very similar to the tax-saving 5-year bank deposit. The rate of interest for an NSC is 6.8%, which is a tad higher than the current rate of interest for bank deposits. The lock-in period is 5 years, and the amount invested is deductible from taxable income under section 80C. Interest is compounded annually, and this annual interest can also be deducted from taxable income. However, the interest amount receivable on maturity is taxable.
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Life Insurance Savings Plans: Savings plans from life insurers offer guaranteed maturity benefits with bonus additions for long-term investors. The plans also have a tax-free maturity and investment. Thus, you can protect your wealth from inflation as well as taxes.
ULIP/Guaranteed Return Plans: ULIP plans offer you investment into safer debt funds. You can allocate 100% of your funds to debt funds while enjoying the tax benefits on your investment. Even when you start with a 100% equity investment, you can later switch to 100% debt in ULIPs. Tax benefits and bonuses ensure that your wealth is safe from market forces, inflation, and taxes.
Alternatively, you may invest in guaranteed return life insurance plans where the return is assured so that you can predict the maturity value.
You need the money at this stage. Moreover, you need guaranteed cash flow post retirement when your income from employment or profession will dry up.
Life Insurance Annuity: An annuity is a long-term investment wherein your contributions are converted into periodic payments that can last for life. In addition, you also get life insurance coverage.
Bank and Post Office Fixed Deposit (FD): Both bank and post office FDs give almost the same rates of interest. If one is highly risk averse, FD is the right choice for investment. The interest rate hardly beats inflation but the person is assured that the money is in safe hands.Unless one is investing in the 5-year tax-saving FDs, you will not get any tax benefits for other FDs. But you can receive a defined sum into your account as interest payments.
Monthly Income Plans: Monthly income plans are mutual funds which aim to provide a monthly income pay out. These funds invest in blue chip stocks to generate income through dividend payments.
Your current state of finance portfolio is important when planning your wealth growth strategies. Keep a holistic view when investing and have the patience to stay invested. Hiring professional wealth managers to help you make decisions based on concrete data will preclude you from making costly mistakes. Factoring in constraints, opportunities, goals, and personal circumstances is essential when drawing a wealth management strategy.
When it comes to managing your finances, both wealth managers and financial advisors play different roles. While many people tend to think they are the same, they actually offer distinct services. Let’s break down what each professional offers.
Wealth Managers: They are recognised for their comprehensive services. Wealth managers don’t limit their help to investment decisions; they help you understand different financial aspects like estate planning and tax strategies. Wealth managers usually help wealthy individuals grow and safeguard their wealth, ensuring that financial goals are achieved while minimising risk.
Financial Advisors: On the other hand, financial advisors help you make general financial decisions. This might include making a reliable retirement plan for you or managing your investment portfolio. Financial advisors offer more focused advice in comparison to wealth managers.
So, when you are thinking about “what is wealth management?" think of it as an all-in-one approach to managing your financial goals.
Knowing the difference between wealth managers and financial advisors is essential to gain a better understanding and choose the right one for your needs.
Wealth Manager | Financial Advisor |
Offers comprehensive services | Offers financial advice |
Works with high-net-worth individuals | Work with anyone who wants to manage their finances, irrespective of their financial background |
Offers services like comprehensive financial planning, investment management, tax planning, and more | Offers services like financial planning, investment management, retirement planning, education planning, and more |
Creates holistic financial plans | Creates specialised plans, like building fun for retirement. |
Finding a wealth management team or manager to aid you in your financial planning is essential for long-term financial success. Having a defined financial strategy that is evolving and managed by a financial professional at all times helps give you some rest. It is thus essential to find and choose a wealth manager with whom you can trust your finances, and who offers advice you can listen to.
A financial advisor is very important to take advice from, especially if you are having a hard time making the right financial decisions. It is still beneficial to investment-savvy people, who might benefit from another voice that can help them with their finances.
Asset managers, most importantly, work on growing their clients' financial assets to gain the most profit. Wealth management keeps a much more holistic focus, offering a range of services aimed at helping people manage their wealth and achieve long-term financial goals.
Wealth management is a branch of financial management that provides advisory services for affluent clients with their investment needs.
A wealth manager works as an advisor to affluent clients and manages their wealth usually for a set fee.
Wealth management aims to maintain, analyse, and increase a client’s wealth based on their financial situation, goals, and risk tolerance.
The 5 steps of wealth management are investment management, portfolio auditing, tax planning and preparation, advanced financial planning, and private banking and reporting services.
There is no set minimum amount required to gain access to wealth management services.
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