High Net Worth Individuals: Best Practices

sign up for enewsBecoming a high net worth individual (HNWI) is one thing; maintaining that wealth can be quite another. Here are some simple but often overlooked best practices for maintaining wealth.

high net worth individuals can learn how to maintain wealth

 1. Think why before how

Don’t even think about how to grow or maintain your wealth until you understand your goals, comprehend your long-term needs and put your situation in context. Think about your financial “pain points.” How important is it to ease that challenge or pain? How will making a financial move affect your family? Why will making a move make you better off than you are today?

2. Understand how all your finances fit together

The wealthiest individuals and families have complex needs. Don’t view one change in isolation. Understand how changing that tax status or investment strategy or stock or other element might affect other elements in your comprehensive financial plan. Among the elements you should consider are your business, philanthropy, investments, tax and estate planning, family dynamics, business succession plan, retirement needs and more.

3. Listen to your advisor team

The best quarterback doesn’t win the football game. The best team wins the game. Mine your advisors for their ideas. Let them comment on your own ideas before you implement them. Consider what your accountant, lawyer, investment professional and any other trusted advisor has to say. Doing so will increase the likelihood of making the best decisions.

4. Include your family

True communication is more than a transaction where information is passed from one person to another. True communication allows all affected parties to have a voice.

I know of a high net worth individual who worked with a wealth management firm that provided outstanding estate planning service for him. He was the patriarch of a large family. While he loved the estate plan, his heirs didn’t see it until after he died. When they did see the plan, they were disappointed.

If you’re the chief financial decision maker in a family, I encourage you to share as much as you can with others in your family. It sounds simple, but many high net worth individuals have trouble bringing up critical financial matters with their heirs. This is another reason to listen to your advisor team. One or more of your advisors may help you share your financial plans with your family in a clearer or more complete way.

5. Build a business

While building a business can take a lot of money, high net worth individuals can find themselves at an advantage when it comes to raising start-up capital. You may have a large savings account, a personal loan fund and high credit scores. Those assets and attributes may allow you to gain approval for a large loan at a competitive interest rate. Helping to fund a new business may be a long-term investment, but the potential returns can be quite significant over time.

6. Invest in financial products

Many of the wealthiest families and individuals invest in stocks, bonds and other financial products. It’s the quintessential way to use money to make money. You can either handle investments yourself or work with an investment advisor. With venture capital investments, you play an active role in shaping an entrepreneur’s business. Other hands-on investments are actively trading stocks and bonds and extending loans to individuals and businesses. Selling or leasing real estate is another profitable, hands-on investment opportunity.

Some high net worth individuals buy residential or commercial property, raise its value through renovations and improvements, then sell the property for a quick profit or rent it out for long-term income. Mutual funds can help you make money grow without having to monitor your investments daily. Mutual funds can be ideal for you if you put in more than 40 hours per week in the office, and simply don’t have time to study and master investment strategies.

What if you prefer to work with a professional investment advisor? Trusting a professional to manage your money is a popular hands-off investment strategy. It allows you to combine your own investment acumen with that of a full-time, experienced professional. You maintain control but gain the insights, experience and recommendations of an advisor.

7. Maximize your tax savings

Under the United States’ progressive tax system, people with the highest income owe the largest percentage of their income to the Internal Revenue Service. Make over $373,650 and you may owe 35 percent ($131,000) to the federal government.

You can significantly increase your after-tax income by taking advantage of tax write-offs. Many write-offs are not well known. They are perfectly legal ways you may legitimately try to reduce your tax burden. Try consulting with a personal tax specialist who’s experienced with the needs and opportunities of  high-income households.

8. Devote time to researching investments

Several years ago, two researchers — Thomas J. Stanley and William D. Danko — spent several years studying the habits of millionaires. Their findings are documented in the best-selling book, The Millionaire Next Door. Stanley and Danko found that on average, millionaires spend almost 20% of their income on investments. And they actively research their investments. In other words, many high net worth individuals don’t view investing as simply a retirement plan, but rather, one of the most important drivers of their wealth and future security.

9. Do keep a budget but don’t buy luxury cars

Stanley and Danko also found that most millionaires have a budget. Are you surprised? These high net worth individuals consider budgeting important and they stick to it. That means, they have a plan and they value their plan. In the end, this can make a huge difference.

What cars do you think most high net worth individuals drive? According to Stanley and Danko, the most popular make of car among millionaires is Toyota. That’s hardly a luxury car name. More than 80% of luxury cars (Mercedes, Porsche, BMW, Lexus and others) are purchased by non-millionaires –that is, people trying to create the illusion of wealth.

The lesson?  Spend your money where it will make a true difference and not in places where you’ll get little or no return on your money.

What other practices do you think help HNWIs maintain and grow their wealth? I’d enjoy hearing your thoughts.


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Gene Offredi, CFP, RFC, Summit Investor Coach, Guilford, CT. Call 203.453.1017 or visit summitinvestorcoach.com.