The term high net worth is difficult to define by any one number or standard. Perceptions of wealth are often relative, and what seems like a fortune to one person might be a modest sum to another.
Despite it being relative, many would consider high net worth defined as having $5 million or more in assets. Read on to learn more about how managing wealth differs in these cases.
Why is Net Worth Difficult to Define?
Net worth is a definition within the financial industry rather than a strict legal definition, which makes the term somewhat relative. At a minimum, a person with at least $1 million in assets could be considered as having a higher net worth. However, given that so many individuals have reached $1 million net worth, financial advisors often focus much of their efforts on those with at least $5 million in net worth.
How Does Net Worth Influence Wealth Management Strategies?
Investors with an increased net worth are in higher demand with financial advisors. Managing the number of assets high net worth investors have requires more effort than many realize. One thing that comes with working for higher net worth investors is a greater demand for personalized services.
For high-net-worth individuals, the need for asset preservation is just as important as asset growth. Although certain market factors can make wealth grow very quickly, not all circumstances lead to long-term preservation. A financial planner can help with a strategy geared towards making sure that wealth grows and lasts.
Many higher net worth investors pay close attention to their liquidity and maintain a certain level of accessible capital (money). Although it may seem as simple as maintaining cash, there needs to be an intentional strategy to allow money to continue growing even when being used. Having a wealth manager who specializes in capital management and liquidity strategies helps ensure that investors maintain their financial stability.
How Do Liquid Assets Contribute to Net Worth?
Not all assets that contribute to a person’s net worth are created equal. Cash is the most liquid asset that any investor can possess. And while cash may not appreciate like other assets, access to cash can create significant wealth when the timing is right. Think about how when the markets are in turmoil. Taking advantage of market downturns can only be accomplished when one has the liquidity or cash to invest.
Some stocks and bonds may also offer liquidity as they are typically able to be sold and converted to cash relatively quickly.
Collectible items, business equipment, and real estate are among some of the least liquid yet can create significant net worth over time. Although real estate has a very real place in many investors’ financial portfolios, it is important to make sure you have the proper liquidity strategy to accompany real estate investments due to their illiquid nature.
Prevail offers some of the most innovative wealth management strategies for anyone who wants advisors who think big and think outside the box. If you’re interested in learning more strategies, contact us today.