Financial experts say that, in order to comfortably retire, your retirement income should be about 80% of your working income. Accruing that amount of wealth can be challenging, and you may find that you want to enjoy a lifestyle that requires even more than that 80 percent mark. Wealth management can help you meet these financial goals for your golden years.
Unfortunately, there are some common wealth management mistakes that many investors make. Read on to discover these mistakes and learn how you can handle your money better.
1. Keeping Your Wealth in Cash
One of the biggest mistakes you can make in wealth management is keeping your wealth in cash. You’ve worked hard to accrue the wealth you have, and you may not want to risk it on something as volatile as the stock market. A savings account may seem like the safe option since your wealth will be secure there.
But keeping your wealth in cash just leaves tens of thousands of dollars sitting on the table. The average savings account gets about 0.1 percent interest, which means even if you have a million dollars, you’re only earning $1,000 a year on it. Investments, meanwhile, have an average return of 10 percent per year, which means you could be making $100,000 on that money.
2. Not Managing Risk Intelligently
Of course, the biggest sticking point for many investors is the unreliability of the stock market. We got an object lesson in how wildly the stock market can swing in 2020 when the pandemic hit, the stock market crashed, and many people lost thousands or millions of dollars. But the key to navigating stock investments without losing your shirt is to manage your risk intelligently.
In general, the higher risk a stock is, the higher your return on investment will be, and vice versa. You want to divide your money among a mix of low-, medium-, and high-risk stocks. This will allow you to reap the benefits of the higher-risk investments without putting your entire savings on the line.
3. Waiting to Invest
Compounding interest is a double-edged sword that can help or hurt you, depending on how you use it. Too often, people wait to start investing their wealth, thinking they have plenty of time or they have to hit a certain threshold before they begin investing. But the longer you wait, the more money you lose out on.
Investing your money early allows you to reap the benefits of compound interest. Even smaller amounts of money will grow with investment returns, and then you can put that profit back into your portfolio and earn money off of it, too. It’s never too early to start investing, and the sooner you do so, the more money you’ll earn.
4. Not Adjusting Your Strategy
Of course, the caveat with investing early is that you can’t pick one wealth management strategy and sit on it for the rest of your life. As you go through the different stages of life, your financial situation and your needs will change. You’ll move from a place where you’re actively bringing in income and aggressively growing your wealth to a stage where you’re ready to sit back and enjoy the fruits of your labor.
There are different investment strategies that can work for each of these stages in your life. As you grow older, you’re going to want to reevaluate from time to time and make sure your strategy is still working for you. Staying agile with your investments can make sure your money is working for you, rather than the other way around.
5. Forgetting About Taxes
As you continue to grow your wealth, it can be easy to think of your investments as being separate from your income. After all, you don’t actively work for that money, and you may lose track of how much you’re bringing in. Unfortunately, the IRS does not lose track of those sources of wealth, and if you’re not careful, you could get walloped with a tax bill you aren’t expecting come April.
You’ll need to work with your wealth manager to create a strategy for how to handle your taxes. There may be investments you can make that will help to reduce your tax burden, so more of your money stays in your pockets. And knowing how much to expect in taxes can help you manage your finances so that you’re prepared for that bill when it comes.
6. Staying with a Subpar Manager
Too often, investors find themselves getting complacent with their wealth management. It can be easy to get comfortable, feel like your investments are being handled, and put them on “set it and forget it” mode. And if you’re working with a subpar wealth manager, you could be losing out on tens of thousands of dollars without even realizing it.
A wealth manager should be constantly working to make sure you’re getting the most out of your investments. They should present you with new opportunities when they arise and offer advice about when to adjust sections of your portfolio. If you feel like your wealth manager is coasting, it may be time to look for a different firm.
Avoid These Common Wealth Management Mistakes
Managing your wealth can feel overwhelming at times, but taking the time to handle it appropriately can pay enormous dividends. It’s never a good idea to keep your wealth in cash, and you should start investing as soon as you can. All investment comes with risk, but adjusting your strategy to manage that risk and meet your current needs will help you get the most for your money.
If you’d like to avoid these common wealth management mistakes, check out the rest of our site at My Guaranteed Income. We are a wealth practice for responsible women, and we help women create confidence in their financial future. Chat with us today and let us help you build the secure future you need.