Four Steps of Wealth Management

The biggest myth about wealth building is that having a “high income” is the same as being “wealthy”. They’re not the same concepts. People with huge incomes are often flat-out broke.  The reason for all of this is simple — being wealthy requires four steps, and not following any one of the steps will destroy your wealth. Income is just a part of becoming and staying wealthy. These steps are

1. Wealth Protection
2. Wealth Accumulation
3. Wealth Preservation
4. Wealth Distribution

In the end, successfully completing all four steps isn’t easy, and can take years — or decades — to learn how to master. They are, however, the only sure path to predictable, systematic wealth building.

Wealth Management - Protection

Wealth protection is to ensure that you will live the lifestyle you desire.  It is more than protecting loss of income from death, disability or critical illness and includes protecting cash flow through budgeting, monitoring, control and actively pursuing means to protect income from unplanned tax consequence. 

Some critical questions that you need to consider are:

- Adequacy of income protection in event of death, disability or critical illness,

- Have you received all your income from various sources,

- Are you spending as budgeted,

- Tax planning.

Proper understand of revenue source and spending will encourage you to save and invest according to plan thus providing enough for your desired lifestyle. 

Wealth Management - Accumulation

Wealth accumulation planning addresses an individual's investment needs, asset allocation, and the suitability of different types of securities in light of your goals and risk tolerance.  It also involves the choice of securities for your investment portfolio.   Basic securities are stocks, bonds, and unit trust funds. Separately managed accounts, indices, option strategies, short-term assets, and annuities may also be used to optimize the portfolio. 

It should also address the the challenge of the risk of losing capital and purchasing power simultaneously.  Thus effective application of asset allocation stategies to minimise risk and maximise returns are essential in this process. 

Some key questions that need to be answered are

- is the asset allocation appropriate?

- what is the actual rate of return compared to the expected rate of return?

- are your regular (monthly or yearly) savings as per your target ?

- have provision been made for major purchases in the coming months?

Adequately addressing the above mentioned areas may ensure minimal disruption to your long term accumulation plans.

Wealth Management - Preservation

Wealth preservation is based on the philosophy that it is more important not to lose money than it is to make money. If an investment falls in value by 50%, you need a 100% return just to break-even. 

It also aims to protect the accumulated wealth against every conceivable financial risk and threat. Proper understanding and assessment of sources of risk and threats helps to decide on the method to protect the accumulated wealth.  This would include:

• Personal liabilities such as guarantor liabilities
• Property and other physical assets.
• Insurance against disabiilit.
• Debt Control and Management.

Inadequate effort to preserve wealth may render it difficult to recover the wealth.

Wealth Management - Distribution

One of the objectives of wealth management is the to carry out  proper planning so that the wealth you have  accumulate can be distributed according to your wishes when the inevitability, death, occurs.  Wealth distribution starts with identifying estate planning objectives.  

Your Will,  being the most important document, has to be valid and specify your wishes clearly without any ambiguity. Needs of your family and other personal values are to be taken into consideration. It should  also clearly  specify how you want to have your wishes carried out when you are not in a position to carry out them yourself when you are incapacitated.  It should include for unlikely events where both spouses die together whereby you have to make provisions for your children who or minors and other dependents like your parents.  Beneficaries should be appointed for your non-probate assets. 

Current regulatory provisions allow for assets such as EPF and Insurance to be distributed outside your estate, as such proper nominations should be made.