Protecting your wealth has become more critical than ever in today’s world of economic uncertainty, volatile markets, and unpredictable events. In fact, you should safeguard your hard-earned assets — regardless of how experienced you are or how newly exposed you are to investing.
Of course, that’s easier said than done.
It’s for that reason that I sought Russell Gray’s advice.
Having over three decades in sales, marketing, and financial services, Russ has written several business plans and consulted with hundreds of investors. He’s also co-authored The Real Estate Guys™ highly-rated book Equity Happens and taught real estate finance for the California Associations of Realtors® GRI program.
The Importance of Protecting Your Wealth
In the event of an unexpected life event, wealth protection helps preserve your assets and financial security. Protecting your financial resources from potential risks and threats is possible by taking these proactive measures. Economic downturns, inflation, market fluctuations, lawsuits, unexpected medical expenses, and others are some of these risks.
Investing in wealth protection is an effective way to protect your financial goals, such as retirement, education for your children, and legacy planning.
Build a Robust Emergency Fund
A good wealth protection strategy involves establishing an emergency fund. If possible, this fund should cover three to six months’ worth of living expenses and be kept in a liquid account that can be easily accessed.
When hard times arise, you will be able to protect your long-term investments and avoid incurring debt.
Be a Value investor
Many movies and TV commercials promote trading the markets as a way to make big money. The concept might seem straightforward: “Buy low, sell high.” However, according to a report from investment platform eToro, 80% of its users lost money over a 12-month period.
“I’m here to tell you that’s not investing,” warns Russ. “That’s speculation. That’s gambling that there’s no value being created.” In other words, cash flow creates value.
For instance, value investors like Warren Buffett are known for their investment strategies. “It is a must for him to look for companies that sell actual products and generate real profits,” explains Russell. “Buffett also looks for companies that are managed well, have a favorable position relative to their peers, and have some upside potential. Basically, it’s like being a value-add investor or a cash flow investor,” he adds.
Diversify Your Investment Portfolio
“The adage “don’t put all your eggs in one basket” applies to investing for a good reason. By diversifying your assets, you can protect your wealth against concentrated risks.
You will also be less affected by a single downturn if you invest across different asset classes, industries, and geographies.
Invest in Main Street
Additionally, Russ suggests buying cash flow, earnings, and real businesses that produce real products. “And that’s Main Street,” he says.
Obviously, you can invest in stocks, but it’s easier to understand real estate basics as a novice, if you will.
There have long been several reasons why real estate is considered a reliable and safe investment. Traditionally, buy-and-hold strategies have been favored, but today, the focus is on cash flow assets. There are many benefits that cash flow real estate can provide that other investments cannot, namely:
- Regular income. Investing in cash-flow real estate can generate a steady stream of cash to pay down debt or invest in other assets.
- Appreciation. Over time, property values tend to increase, providing additional income on top of rental income.
- Tax benefits. It is possible for real estate investors to benefit from a number of tax breaks, such as tax deductions for depreciation and tax breaks for passive income.
- Hedging against inflation. Real estate is a tangible asset capable of holding its value or even appreciating during inflationary times.
“If the financial system collapses, asset values will plummet,” Russ adds. “But that’s not the case with cash flow.”
In 2008, we learned that lesson. Russ Gray explains that home prices dropped 40% or 50% in some markets, and rents perhaps 10%. That means that if you lived off your rents, you were fine. However, a person who speculated on prices, buying low, selling high, and flipping properties got burned.
Regularly Review and Rebalance Your Portfolio
You may find that your investment portfolio drifts from its intended asset allocation over time as market conditions change. For your investments to align with your long-term goals and risk tolerance, periodic reviews and rebalancing are essential.
As a result, your portfolio remains diversified and balanced, which makes it easier to withstand market fluctuations.
Protect Your Assets with Insurance
Insurance acts as a protective shield in the event of unforeseen events that can result in significant financial loss. It’s crucial to protect your wealth with the right insurance coverage, whether it’s life, health, property, or liability insurance.
Reduce Debt and Liabilities
A debt load can be a significant barrier to wealth protection. Credit card debt, for example, can quickly erode your assets and stall your progress financially. If you are deeply in debt due to missed payments or high balances, you might have difficulty qualifying for a new card or loan.
In order to reduce your financial vulnerability, you can pay more than the minimum payment, pay off high-interest debt first, or consolidate your debt. It is also important to avoid accumulating liabilities.
Estate Planning: Securing Your Legacy
While many believe estate planning is only for ultra-wealthy individuals, that is untrue. Having a will is essential to protecting your wealth and leaving it to your loved ones after you die.
A comprehensive estate planning strategy should include a will, a trust, and a power of attorney, so consult an estate planning lawyer. As a result, you can dictate how your assets are distributed and who will handle your affairs in the event of your incapacitation.
Tax Efficiency: Keep More of What You Earn
In tax efficiency, you minimize the taxes you pay on your investments. You can accomplish this by choosing the right investments, opening the right accounts, and employing tax-efficient strategies.
Several factors can affect an investment’s tax efficiency, including:
- Investing type (stocks, bonds, mutual funds, ETFs, etc.)
- Holding period (how long you own the investment)
- Your income
- The tax bracket you are in
The tax efficiency of some investments is innately higher than that of others. For example, the tax efficiency of index funds is generally higher than that of actively managed funds. As a result, index funds do not trade as frequently as actively managed funds because they track a specific index, such as the S&P 500.
Investing in the correct type of account can also affect the tax efficiency of your investments. A tax-advantaged account, such as a 401(k) or an IRA, can help you conserve funds for the future. In addition to tax-deductible, 401(k) and IRA contributions are tax-deferred.
You can reduce your tax liability using tax-efficient strategies as a final option. For instance, you can harvest tax losses if you sell investments that have lost value. In addition to reducing your tax bill, this can offset capital gains realized in other investments.
Stay Informed and Educated
Regulations and markets in the financial sector are constantly evolving. It is essential to stay up-to-date on economic trends, investment options, and financial planning strategies to protect your wealth effectively. Attend seminars, read reputable financial publications, and consult with a financial advisor for well-informed decisions.
Understand the Definitions of Inflation, Deflation, Stagflation, and Shrinkflation
Inflation, deflation, stagflation, and shrinkflation can be defined as follows:
- Inflation. When prices increase, and money’s purchasing power decreases, the result is inflation. Prices of consumer goods and services that are frequently purchased by consumers are generally measured by the Consumer Price Index (CPI).
- Deflation. As a result of deflation, prices generally decrease and money’s purchasing power increases. As a result, the CPI typically decreases.
- Stagflation. The concept of stagflation is the combination of inflation and economic stagnation. A high rate of unemployment, slow economic growth, and rising prices characterize this period.
- Shrinkflation. During shrinkflation, product sizes are reduced while prices remain the same. As a result, it can seem as if prices are not rising, even though they are.
Once you understand the system, then you understand how you need to invest in a system that requires exponential growth of debt and inflation. –Russell Gray
Prepare for Long-Term Care
You may lose your assets if you don’t adequately plan for long-term care costs, such as assisted living or nursing homes. You may want to consider long-term care insurance or other financial vehicles to help you cover these costs without draining your savings.
In order to protect your wealth, you need to make prudent financial decisions, plan strategically, and be proactive. To protect your financial future from unexpected events, building a solid foundation with an emergency fund, diversifying your investments, and utilizing insurance and estate planning tools is essential.
Protecting your wealth is a lifelong commitment rather than a one-time endeavor. So, don’t put off taking steps today to make tomorrow better and more prosperous.
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