Up to this day, wealth acquisition still serves as human's main driving force to live their live. It is indeed one of the sensitive knots planted in human mind. Wealth acquisition motive is sometimes blamed for some people's indecent act of corruption. We don't see one or two cases of corruption worldwide, but hundreds of it as shown by the 2009 Corruption Perceptions Index. This proves that wealth acquisition has become the ultimate goal crucially chased by people.
Despite the unpleasant fact about corruption, wealth acquisition can actually be managed and good wealth acquisition management prevents people's mind from being corrupted. The discussion of wealth acquisition actually resides in the whole set of an advanced type of financial planning, wealth management. Wealth management has become a distinguished type of both financial planning and personal banking. And seeing the large number of increasing high net-worth people along with endowments, foundations, and retirement plans, wealth management has become a promising business opportunity. A specific discussion on wealth management business aspects will be presented in another article.
Wealth Management Defined
We can define wealth management as an advanced type of financial planning and investment portfolio management altogether which are conducted in a tailored basis according to each client's personal investment goal. Nowadays, as it become more popular, wealth management services is performed mainly by large banks. This is due to the fact that the banks hold custody of the most liquid assets of their clients, cash. Cash is the asset that preserves the highest potential of return or opportunity cost of usage. Since banks hold all the cash, they have the sufficient bargaining position to offer wealth management service.
Components of Wealth Management
Wealth management consists of at least two components: wealth acquisition and accumulation and wealth protection.
Wealth acquisition and accumulation is the relevant issue with regards to the beginning issue in the beginning of this article. This is because there are actually legal techniques that can be used effectively to accumulate wealth. By legal here means decent management in matters of investment management and tax management.
Investment management can be conducted properly and effectively by first defining the investment goal and time horizon. By having these two set, investment management can develop a certain matching scheme of asset placement along with its proper placement period. We can conduct wealth accumulation by choosing the right set of alternatives yielding the proper return with a certain risk set forth initially.
Tax management is the next phase that always entail investment management. What is sought after from conducting this is the balance between wealth accumulation and minimum-exposure compliance to tax regulations. We certainly don't want to be rich and chased by tax authorities at the same time.
Wealth Protection
After setting the wealth accumulation scheme, the next thing to do is creating a proper protection for the wealth itself. This is due to the fact that unprotected assets face many threats that in turn can bring potential decrease in value. In order to manage wealth protection, wealth management consider several protection tools, namely insurance (of course), hedging, and asset diversification.
We already know about insurance. As familiar as it may be, insurance still play an important role in wealth management. For the sake of wealth managing, insurance consists of general insurance, health insurance, and life insurance. Shortly speaking, general insurance deals mostly with the aspect of our physical assets, health insurance mostly deals with medical care and potential disabilities, and life insurance takes a longer and broader scheme since it deals with our life, which consists of endowment, financial annuities, and a combination of insurance and investment or commonly termed as unit link. One to bear in mind, insurance that protects our life is indeed protecting our wealth since wealth can only be relevant if we live well.
If we conduct our precautions well in terms of creating a good insurance plan, we can move to the next aspect in wealth protection: putting a safety net for our financial assets, and that is hedging. Hedging means putting safety nets around our assets, mainly financial assets. Hedging plays an important role in financial assets since making money through such assets are both potential for high return and high risk at the same time. We can use tools of hedging, like taking contracts in forms of futures, forward, or option to safeguard the future value of our financial assets.
In discussing hedging as a mean of financial protection, please bear in mind that our perspective should always lay on the side of wealth protection, not investment. Don't be confused with hedge fund, because hedge fund puts forth an investment perspective. You can see more on the discussion about hedge fund on my other article.
Finally, wealth protecting action is concluded with asset diversification. In this matter, we minimize potential risks at the very beginning, at the source of our investment portfolio. Put it simply, asset diversification is about developing a proper combination of assets. We have to mix a good proportion of financial assets and physical assets. Not only that, the asset composition in each group should also be diversified in terms of geographical distribution. A good diversification is one that gives a optimum return in a given state of risk or one that holds the minimum risk for a certain rate of return.
You may be confused, where is the protection aspect in diversification? Would it be more proper if diversification is put in investment strategy building phase? The answer is stated above, that diversifying our assets allows us to put potential risks to a minimum. That's an act of protection. Making a certain amount of effort to associate minimum risk is done in order to expect low risk. Again, that's an act of protection which is done at the very source of wealth management.
Intriguing Business Potential
As described above, wealth management is highly relevant for everyone, since everyone needs wealth to live. When every government in the world hope to have a growing economy, wealth management business opportunity follows behind since growing economy means growing wealth for the people. Consider yourself, if you are able to perform the techniques in wealth managing you will see your market immediately. I'll discuss more about the business opportunity and model in another article.
(Images source: www.mamwealth.com and valvonac.com).
Despite the unpleasant fact about corruption, wealth acquisition can actually be managed and good wealth acquisition management prevents people's mind from being corrupted. The discussion of wealth acquisition actually resides in the whole set of an advanced type of financial planning, wealth management. Wealth management has become a distinguished type of both financial planning and personal banking. And seeing the large number of increasing high net-worth people along with endowments, foundations, and retirement plans, wealth management has become a promising business opportunity. A specific discussion on wealth management business aspects will be presented in another article.
Wealth Management Defined
We can define wealth management as an advanced type of financial planning and investment portfolio management altogether which are conducted in a tailored basis according to each client's personal investment goal. Nowadays, as it become more popular, wealth management services is performed mainly by large banks. This is due to the fact that the banks hold custody of the most liquid assets of their clients, cash. Cash is the asset that preserves the highest potential of return or opportunity cost of usage. Since banks hold all the cash, they have the sufficient bargaining position to offer wealth management service.
Components of Wealth Management
Wealth management consists of at least two components: wealth acquisition and accumulation and wealth protection.
Wealth acquisition and accumulation is the relevant issue with regards to the beginning issue in the beginning of this article. This is because there are actually legal techniques that can be used effectively to accumulate wealth. By legal here means decent management in matters of investment management and tax management.
Investment management can be conducted properly and effectively by first defining the investment goal and time horizon. By having these two set, investment management can develop a certain matching scheme of asset placement along with its proper placement period. We can conduct wealth accumulation by choosing the right set of alternatives yielding the proper return with a certain risk set forth initially.
Tax management is the next phase that always entail investment management. What is sought after from conducting this is the balance between wealth accumulation and minimum-exposure compliance to tax regulations. We certainly don't want to be rich and chased by tax authorities at the same time.
Wealth Protection
After setting the wealth accumulation scheme, the next thing to do is creating a proper protection for the wealth itself. This is due to the fact that unprotected assets face many threats that in turn can bring potential decrease in value. In order to manage wealth protection, wealth management consider several protection tools, namely insurance (of course), hedging, and asset diversification.
We already know about insurance. As familiar as it may be, insurance still play an important role in wealth management. For the sake of wealth managing, insurance consists of general insurance, health insurance, and life insurance. Shortly speaking, general insurance deals mostly with the aspect of our physical assets, health insurance mostly deals with medical care and potential disabilities, and life insurance takes a longer and broader scheme since it deals with our life, which consists of endowment, financial annuities, and a combination of insurance and investment or commonly termed as unit link. One to bear in mind, insurance that protects our life is indeed protecting our wealth since wealth can only be relevant if we live well.
If we conduct our precautions well in terms of creating a good insurance plan, we can move to the next aspect in wealth protection: putting a safety net for our financial assets, and that is hedging. Hedging means putting safety nets around our assets, mainly financial assets. Hedging plays an important role in financial assets since making money through such assets are both potential for high return and high risk at the same time. We can use tools of hedging, like taking contracts in forms of futures, forward, or option to safeguard the future value of our financial assets.
In discussing hedging as a mean of financial protection, please bear in mind that our perspective should always lay on the side of wealth protection, not investment. Don't be confused with hedge fund, because hedge fund puts forth an investment perspective. You can see more on the discussion about hedge fund on my other article.
Finally, wealth protecting action is concluded with asset diversification. In this matter, we minimize potential risks at the very beginning, at the source of our investment portfolio. Put it simply, asset diversification is about developing a proper combination of assets. We have to mix a good proportion of financial assets and physical assets. Not only that, the asset composition in each group should also be diversified in terms of geographical distribution. A good diversification is one that gives a optimum return in a given state of risk or one that holds the minimum risk for a certain rate of return.
You may be confused, where is the protection aspect in diversification? Would it be more proper if diversification is put in investment strategy building phase? The answer is stated above, that diversifying our assets allows us to put potential risks to a minimum. That's an act of protection. Making a certain amount of effort to associate minimum risk is done in order to expect low risk. Again, that's an act of protection which is done at the very source of wealth management.
Intriguing Business Potential
As described above, wealth management is highly relevant for everyone, since everyone needs wealth to live. When every government in the world hope to have a growing economy, wealth management business opportunity follows behind since growing economy means growing wealth for the people. Consider yourself, if you are able to perform the techniques in wealth managing you will see your market immediately. I'll discuss more about the business opportunity and model in another article.
(Images source: www.mamwealth.com and valvonac.com).
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