Everyone wants to build their wealth and be financially stable to achieve success as well as peace of mind. However, wealth protection and growth requires a thorough financial plan. You have to review it on a regular basis and understand exactly where you’re headed. The formulation of your successful financial plan can be based around a couple of key strategies in financial management i.e. wealth preservation and wealth growth.
Well, considering all the speedy changes going around and the political, social and economic instability that comes along, the preservation of wealth has become essential for effective asset management and wealth planning. And, when you start preserving your wealth, you automatically put yourself on the route to wealth growth by making careful investments and following a well laid out plan. Nevertheless, growing wealth and preserving it aren’t essentially the same and there are some differences that exist. So, let’s find out what each of these terms actually mean and what exactly sets them apart.
Wealth preservation is a strategy that ensures your assets grow while providing a legacy for your family. For wealth preservation there are a variety of investment plans that are all aimed at securing your wealth for the long term.
Wealth growth can be defined as getting returns on your investments and increasing your wealth through capital appreciation. Among the most important investment goals, growing your wealth probably comes on top. Basically, wealth growth involves making new investments by taking risks that should result in increasing your wealth.
Differences Between Wealth Preservation And Wealth Growth
It is clear that growing your wealth is somewhat a different concept than wealth preservation. However, both of them are important to keep you on top of your finances. Your financial goals that were once meant to grow your wealth may change over time as your retirement draws near. During your initial years of growing and accumulating wealth, you may have plenty of time to think and rethink about investment potions that prove to be the most profitable. But as you get older, you cannot afford the luxury of making poor decisions as you have no time to recover from your losses should anything go wrong. So, as you age, you may shift from being growth-oriented to preservation-oriented. Some of your goals may still be for the growth of your wealth but most of them are about preserving it for your days after retirement.
According to Loy Yi Zhuo, founder of ChamberWealth, the key differences between the strategies for preserving and growing wealth are time frame, type of investment vehicle, risk exposure, key objectives and exit strategies.
Other than that here are some differences between growing wealth and preserving it:
- While growth of wealth means making more assets or wealth, wealth preservation means to safeguard that wealth so you don’t lose that money.
- Growth of wealth occurs as a result of getting returns from your investments while preserving it means that you effectively save it in the form of bonds or other similar options. While investment options like equity and real estate encourage wealth growth, bonds and gold encourage wealth preservation.
- Another difference between the two is that different investments can be relied upon to fulfill the goals for each. An investment that would be great for wealth preservation might be too defensive or inappropriate for growing your wealth. In fact, even your mindset towards your wealth or an investment can change things upside down. For instance, investing in real estate can help you grow wealth but if you self-occupy it then you go towards preservation.
- For wealth preservation, you can still make investments but need to diversify your investment portfolio. This ensures that even if one investment fails, you are making profits from the others. On the other hand, if you’re looking for steep growth, you can make one solid, and the most lucrative, investment and expect your wealth to grow rapidly. Nevertheless, you have to be very calculative about the risk you’re taking otherwise you may not be able to bear it if your investment decision backfires.
- Lastly, wealth preservation itself is a strategy for wealth growth if you look at it in the long run. Obviously, even when you have a mindset to preserve wealth, you’re still making investments and earning profits. This makes for steady growth and can be quite a successful long term plan.
Strategies For Wealth Preservation
Here are some strategies and investment options that can help you preserve wealth.
- Manage Assets Part Of Your Retirement Plan: Having decided to just give away your IRA to your descendants after your demise could be a poor move. A percentage of your assets could be lost to the federal state or income tax. Investing this money in life insurance policies is a much wiser decision as your heirs would then get all the insurance death benefits without losing a portion of it to the state or income tax.
- Diversify Your Investments: As mentioned earlier, your investment risks can be minimized when you diversify your investment portfolio. This means you don’t lose much capital even when an investment backfires.
- Preparing a will: Prepare a will and keep updating it according to your personal circumstances. Make sure it keeps pace with every aspect of your life like marriage, birth, divorce, etc. Preparing a will ensures that your wealth lands the right place.
Strategies For Wealth Growth
Here are some strategies and investment options that can help you grow your wealth.
- Put A Limit To High-Fee Investment: Making investments is great but what if you have to pay too much of investment fees for each? It can certainly slow down your wealth-building process and efforts. So, be wise and put a limit to those high-fee investments. And, make sure you only go for the ones offering sizable return.
- Set Very Specific Goals: It’s good to have wealth growth as your ultimate goal, but you need to be very specific about how you’d define it. Set your specific goals, formulate a roadmap for achieving your desired wealth growth and then stick to it.
- Give It Time: Take wealth growth as your long term plan. Obviously, it’s never possible to build empires overnight and you should be patient enough to let the returns come to you. Even the steps you take for wealth preservation will lead you to wealth growth if you stay patient.
So, we can say that wealth preservation and wealth growth are connected to each other somehow. There can be some differences in how they are perceived and the investment options that are preferred for each but you end up growing your wealth at the end of the day.
Wealth and growth preservation doesn’t come with its pros and cons. Loy Yi Zhuo, founder of ChamberWealth – a financial advisory focused on your needs, finds that the common pitfalls for either preserving or growing your wealth is being too emotional and not having a clear objective hence messing up the exit strategy, jeopardizing the portfolio outcome. “Have a neutral party to assist in the planning process should reduce the impact.”
“The con of preserving wealth is usually the long time frame. We live in a fast-paced world and we often wants fast results, the best way to overcome this is to place this portfolio in a less accessible product where you won’t monitor it on a day-to-day basis,” he advises.
(By Taha Khan)
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