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Wealth Management Fundamentals to Address Your Investment Basics

The term wealth management refers to managing investments.

This is a combination of financial, taxation and accounting advice.

It is essential because this is the single most effective way to grow your money.

Managing your wealth requires some definitive expertise.

Wealth managers sometimes even expand the range of their services.

It also includes the likes of estate planning and retirement savings.

There are many who also advise about philanthropic activities and related work.

So, wealth management is not only investment advice.

It provides a direction to your savings.

You can save with a target in mind.

Wealth managers help you create goals and provide direction to achieve them.

So, it is just growing your money.

Instead, it is about growing your money with a purpose.

You can plan for your immediate needs and future requirements.

Proper wealth management also helps you to work towards financial independence.

It becomes your ticket to achieve self-sufficiency in financial terms.

In simple words, it means a strategy to limit your losses.

It also means a strategy to make your money grow.

Wealth management is essentially a consultancy service.

Depending on their specialization, some offer market strategies while other give investment options.

Primarily, it is advice directed towards managing your money.

That is why it covers some trust operations and insurance services.

The wealth managers guide their clients in financial dealings.

In some organizations, you can have a single wealth manager.

While there is somewhere you will have a host of them serving you as a team.

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The Basics of Wealth Management

Wealth Management

So, wealth management is primarily a combination of multiple elements.

It needs balanced asset allocation with a set target.

This normally follows detailed analysis and planning.

A wealth manager essentially has to bring in a happy marriage of all these elements.

So, when we are dealing with basics of wealth management, you need to look at them all.

An integrated operating module will help bring sustainable results.

Appropriate planning leads to effective execution.

The right choice of wealth managers is also crucial.

It enables formulating a sustainable plan with definitive results.

That is a critical combination.

However, the point is how you bring all these three on a common platform.

Well for that, you need to pay attention to how every element connects with the other.

What Is Asset Allocation?

In wealth management, this phrase is quite often.

A rough look at different financial literature can completely confuse you.

So, does asset allocation refer to portfolio adjustment or is it limiting loss?

Of course, it also involves forecasting trend and making the necessary allocation.

It is also important to calculate the return prospects.

The origin of asset allocation is primarily rooted in the growth projections.

Analysts predict growth targets for various asset classes.

Most investors divide their resources amongst all of these as per that forecast.

The expectation is pretty much a combination of all the factors we listed.

So, you want to earn a profit, limit losses and achieve investment targets.

But the reality is, Markets seldom conform to these expectations.

So, asset allocation is never as straightforward as those forecasts.

It is a far more dynamic and complex game plan.

So, investors have to balance these estimates with their targets.

That&8217;s what primarily dictates their asset allocation.

Moreover, market estimates can be broad, but asset allocation is never that way.

Individual objectives solely determine the asset allocation.

A robust allocation takes individual specifications into consideration.

That is a crucial input.

So, you can draw a similarity between balance sheet management and allocating assets.

It is an exercise where an individual adjusts financial liabilities and assets.

Isn&8217;t that almost like a company&8217;s balance sheet?

In this case, mortgages, loans, home expenses are the liabilities.

Meanwhile, real estate, bank deposits, Mutual Funds and other savings are the assets.

Interpreting Liabilities

This could often be the primary roadblock in wealth management.

Yes, interpretation of liabilities in asset allocation is tricky.

While a home loan or a mortgage is fairly simple and straightforward, everything isn&8217;t.

There are some liabilities which are a considerable drain but can be difficult to ascertain.

Ambiguity is the buzz word in this case.

It can be anything like your credit card debt that is snowballing into a huge liability.

It can be something even vaguer.

Even the quality of your lifestyle can turn into a liability.

So, liabilities could even spring from aspirations.

If aspirations do not match with actual capabilities, it becomes a liability.

Let&8217;s say your retirement income permits one holiday a year for next 10 years.

But you aspire to see the world in 80 days.

Well, that will surely become a liability.

The additional expenses create undue pressure on your assets.

So, asset allocation is never about adjusting to market action.

It is primarily about maximizing your portfolio.

Of course, you take liabilities and market estimates into account.

But, this is primarily directed at benefiting your personal account.

Therefore, asset allocation is a combination of strategy and patience.

So, overall liabilities and concerns impact the broad strategy.

Therefore, your asset allocation is also impacted.

But, asset allocation is never a onetime process.

It is a continuous development.

You have to continue making the changes as per the changing dynamics.

Wealth Planning

Wealth planning is the next step in asset allocation.

Essentially this is about taking steps to preserve your wealth.

You have to take into consideration the various eventualities.

Look at the factors that can impact your wealth.

These comprise of tax liabilities, debt and similar eventualities.

The question is you need to make your planning foolproof.

You should not let your investment fall prey to these uncertainties at any cost.

Remember poor planning can completely ruin a great asset allocation strategy.

Planning and asset allocation go hand in hand.

If asset allocation is balancing asset and liabilities, planning leads to execution.

Effective wealth planning involves determining the instrument of savings.

Just like it is important to analyze how much to invest, it is necessary to know where.

So, this is a crucial phase in overall wealth management.

It provides you answers to the where and when of your target investment.

Often the location of your asset and the time you hold it becomes crucial.

Nurturing them properly ensures steady growth.

Wealth planning, therefore, needs you to take a realistic call about future requirements.

Well, none of us has a magic mirror.

You can never predict the exact expense sheet.

But effective wealth planning can help you make a basic estimate.

It will not expose your lifetime earnings to unnecessary risks.

So, it is vital to make these calls on a constructive basis.

Thoughtful wealth planning is not just about anticipating expenses.

It is also about creating a meaningful contingency plan.

Wealth Planning in Asset Allocation

Probably, I can illustrate this point better with an example.

Let&8217;s say you have decided on 80% equity and 20% fixed income allocation.

But does it mean all your investments need reflect this ratio?

Of course, not.

This is where effective wealth planning comes to play.

The overall asset allocation needs to project this bias.

But individually, every tool does not need to highlight this bias.

So, you could be holding only equities in some and only fixed income in others.

But the broad bias maintains the 80-20 ratio.

I am sure; this will help you understand core structure of planning.

Effective planning can also help you avoid misappropriation of wealth.

It helps make sure that your asset remains in safe hands.

Wealth planning can be a safety valve in case of family dispute or business conflict.

Even in divorce dealings, effective wealth planning can help.

Even documents pre-nuptial pacts are effective steps for wealth planning.

Moreover, wealth planning is crucial when dealing with real estate.

Tax exemption and liabilities are also part of wealth planning.

In many ways then, wealth planning is a reiteration of the entire investment goal.

It also keeps a tab on the changing legal scenario.

It helps you to keep a check on your financial health and review it from time to time.

This keeps you alert and aware of the various developments.

Wealth management can lead to financial independence.

But before that, effective financial planning has to provide the key.

It helps maintain clarity of purpose and intent.

Selecting a Wealth Manager

This is one of the most significant factors in effective wealth management.

You have allocated assets, created a wealth plan but all of this is theoretical.

The wealth manager is the person who executes it.

You must understand that nothing is pre-planned in the financial world.

Uncertainty is principally the name of the game.

So irrespective of the plan, the only person who can make it happen is the wealth manager.

So, a wealth manager needs to be dynamic, sharp and spot on with the strategies.

But the tedious schedule has its own challenges.

Perhaps that is why, today, we are seeing sea changes.

Increasingly we see a wide number of managers resorting to passive options.

ETFs, Index funds are seeing very high inflows.

The net inflows to these instruments in 2014  over $200 billion.

In the same period, actively managed funds saw an outflow of over $10 billion.

It is hard to find successful active wealth managers.

In that situation, these passive funds provide a scope for genuine returns.

Especially in the bull market scenario, this can be a stupendous opportunity.

If you are into wealth management, in many ways, this is an hour of reckoning.

This is why the choice of an appropriate wealth manager is crucial.

The realities of the investment world are changing quite fast.

Value more than the method is taking a center position.

The wealth manager has to be dynamic about embracing these changes.

It Is Not Wrong to Be Wrong for Success

When it comes to wealth management, you can say everything that yields profit is right.

Therefore, successful investment managers should not worry about their decisions.

Their investment calls can appear wrong, but if it yields success, who cares.

The tricky market conditions often lead to job preservation techniques.

These wealth managers then work on strategies that help them save their job.

The low incentive for active managers is another key concern.

Investors like Warren Buffett are now taking strong initiatives in this regard.

Berkshire Hathaway is taking significant steps in encouraging them.

The idea is to create long-term opportunities.

The wealth managers should not be buoyed by short-term volatility.

That again means it will be wrong to lose sight of the overall goal.

The incentive structure or the lack of it also creates a significant rift.

Engaging appropriate wealth managers in meaningful exercises is crucial.

That has a direct link to the extent of returns you can expect.

Wooing Assets the Right Way

That brings us to the next most important aspect of wealth management.

How exactly do you zero in on assets?

Historical evidence links wealth management to a degree of contrarian trading.

The market needs to be mindful of the right combinations.

Successful investment decisions are always in sync with basic market understanding.

Most assets price in a reasonable amount of conventional wisdom.

Timing, sentiment and luck play a crucial role in how investments pan out.

Sometimes, they become greater triggers than skill.

Moreover, you need to align the investments to an investor&8217;s objective.

Assets need to represent both value and growth.

Together these also should hold the promise of delivering sustained gains.

This way the assets will remain dynamic.

Therefore, choosing the appropriate asset is a key to effective wealth management.

Creating the right balance continues to be the name of the game.

The Risk Factor in Wealth Management

This brings us to the final most important factor of effective wealth management.

It is the ultimate risk conundrum.

We all know wealth management is all about the balance.

It is about creating the right pull and push between demand and supply.

Therefore, risk begins to play a crucial role in this context.

Well, wealth managers look at risk in absolute terms.

There is never anything relative to risk.

Remember the ultimate goal is primarily to preserve capital.

Wealth management seeks to bridge the customers’ needs to the available resources.

Don&8217;t let your focus shift from value.

Remember the risk is in chasing the trend.

The risk is relying too much on just price mechanism.

Never forget the fundamentals.

Don&8217;t look at relative movement.

Look for the absolute extent of gains.

That is how you can handle risk with a tight fist.

The risk is never about giving in.

It is more about not securing your corners well.

Therefore, wealth management is risk management in many ways.

One of the most important principles is preserving capital.

Come to think of it, how do you do it?

Often preserving capital is all about managing risks.

It is about manipulating the risk element, about minimizing the shock factor.

Risk has to be dealing in a constructive manner.

Remember here again the fundamental laws of leverage come to play.

Wealth management, in this case, is as complex or simple as buying a stock.

You have to assess the risk and provide room for taking in the shock as well.

Also, then calculate the collateral damage.

That should not exceed the income opportunity.

That will then help you get a realistic idea of the profit prospects.

Wealth Management Is a Complex Labyrinth

Therefore, we can conclude that wealth management is a complex labyrinth.

It is an amalgam of several factors together.

That alone creates a harmonious mix of basic elements in investment.

Balance and seamless integration are the primary objectives.

This coupled with steadfast focus yields value.

Often asset allocation is a function of present capabilities and future needs.

The future need can be both tangible and intangible.

It can be quantifiable like child&8217;s education expenses.

But at the same time, it can be aspirational in nature too.

Careful asset allocation with thorough investment planning is important.

The proper selection of wealth managers helps you focus on profit.

It brings in an element of disciplined and systematic risk distribution.

That alone can tilt the risk-reward ratio in your favor.

The fundamentals of wealth management underscore the core principles of investment.

If you want to grow and preserve your wealth, you need to balance these factors.

Effective wealth management incorporates all these factors to create perfect harmony.

So asset allocation, wealth planning and efficient manager are the foundation stones.

They alone can make sure that your approach will lead to effective wealth management.

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