Becoming rich is hard, and staying rich, that can be harder.
Many people focus on wealth creation and accumulation for most of their lives, and, at some point, consideration has to be given to wealth or capital preservation.
Wealth distribution management is also required if you will be drawing an income from your porfolio, and, ultimately you want your assets to be distributed from your estate according to your wishes.
You may have spent your lifetime building your wealth, or, you may have sold your business, received an inheritance, sold or down-sized your home, or, for a very small percentage of people, won the lottery. You may be retired, semi-retired, soon-to-be-retired, self-employed or still employed, wealth preservation still comes at a cost and that cost is the amount of risk that you are willing to take with your investments.
No risk investments such as GICs (guaranteed investment certificates) are currently paying a low interest, and, if you have enough money to last the rest of your life and keep up to inflation while your dollar’s purchasing power declines, investing in GICs only may be a perfect solution for you.
Being able to sleep at night is important, but knowing that you will not run out of money during your lifetime is priceless.
For those that do not fall into the ‘GIC interest is enough’ category, there are some difficult decisions that have to be made in order to stay rich.
Do not under-estimate the monthly cash flow that you require to live the lifestyle you desire or over-estimate the return that your portfolio will earn. A withdrawal rate of six to eight per cent annually is often used, but if you use a more conservative four to five per cent annual withdrawal rate, you stand a better chance of maintaining your capital, especially during a prolonged downturn as we have recently experienced.
No big surprise, but an important factor of staying rich is to control your spending.
Wealthy people may not use a monthly budget, but yes, even wealthy people have to pay attention to how much they are spending to ensure they don’t outlive their capital.
Wealth preservation and distribution requires strategic planning and different skills than wealth accumulation. Trusts may need to be set up, wills and power of attorney arranged, insurance coverage should be reviewed, and doing everything involved can seem a daunting task. Unfortunately, this often leads to doing nothing, and that can be the largest risk of all.
Most of us have heard of the lottery made millionaires who lose everything within the first year or two. This doesn’t necessarily mean that they haven’t worked hard all of their lives, it may mean that they didn’t have the discipline we discussed earlier and they did not receive or follow good advice.
This article was prepared by Carol Plaisier, CFP®, FMA, AMP (Accredited Mortgage Professional) who is an Investment Advisor with DWM Securities Inc. in Parksville 250-248-2399, or by e-mail: cplaisier@dundeewealth.com or www.carolplaisier.com.
This is not an official publication of DWM Securities Inc. and the views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessarily those of DWM Securities Inc.
DWM Securities Inc., Member-Canadian Investor Protection Fund, is a DundeeWealth Inc. Company.
