Managing wealth effectively normally requires knowledge in areas such as estate planning, tax planning, portfolio management and asset allocation. An individual who has amassed a fortune can use services provided by wealth management firms that specialize in these areas. On the other hand, an individual who wants to enter the business of managing wealth for clients will normally need education in this field and qualifications such as those of chartered financial analyst (CFA), certified public accountant (CPA) or certified financial planner (CFP). Moreover, the best approach when it comes to managing wealth depends on individual financial goals, the investment time available, the risk tolerance and other factors.
Financial knowledge is one of the many deciding factors when it comes to managing money. For example, an individual might become wealthy through inheritance, but they may be ignorant when it comes to financial matters. Such an individual might benefit from financial advice from a professional. This professional can walk him or her through many money management and investment options and help the individual understand the different risks and rewards associated with each option.
Accountants usually are good people to turn to regarding tax issues because they know ways to minimize taxes, which might save a lot of money for wealthy individuals. Lawyers, CPAs and other relevant professionals generally are good in areas such as estate planning, which help outline how one's assets are to be handled in case he or she becomes invalid or dies. Moreover, when managing wealth, whether it is personal wealth or family wealth, independent CFAs, CFPs, CPAs and dedicated firms can help individuals design plans to help them reach their goals.
After individuals have defined the goals and factors such as risk tolerance, then they can use asset allocation methods and other investment strategies to help them build and maintain their portfolios. The portfolios might be comprised of assets such as real estate, stocks, bonds, shares in mutual funds, precious metals and others. Wealth management firms can help wealthy individuals make investment decisions and/or the firms can actively manage their portfolios on their behalf within specified limits.
When managing wealth, asset allocation techniques can allow one to find the right balance between risk and reward. Achieving the ideal balance is normally done by first understanding one's overall goals, his or her risk tolerance and the time frame he or she will be investing. The stock market, for example, is considered to be more risky than the bond market, which in turn can be riskier than the insured savings accounts. An asset allocation method, therefore, might help design the best allocation strategy so that one can allocate the right amount of money into stocks, bonds, savings accounts and other investments according to his or her needs.
For instance, when one is investing for retirement at age 50, he or she will use a different asset allocation strategy than a person who is in his or her 20s wand hose mission is that of creating wealth. The 50-year-old person typically will seek more conservative investments that promise to be safe. The 20-something investor, on the other hand, usually will lean on more aggressive investment strategies that are risky but that can potentially return greater results. Also, managing wealth is a customized effort, because there are no one-size-fits-all approaches.