Avoid risky schemes to get rich with wealth management planning

We all know the get-rich-quick opportunity: a promise to make a fortune quickly that often seems too good to be true, but many people buy into it anyway.

Ponzi schemes, pyramid schemes; Whatever the description, these investment programs carry enormous risks, even if it is not immediately apparent.

The term “get rich quick” dates back more than 130 years according to the Oxford English Dictionary. Slightly more recent is the century-old one Ponzi schemesold because of the supposed high return on a so-called low-risk investment.

Lately you may be aware of the proliferation of schemes claiming that anyone can build a real estate portfolio and obtain certification to do so in no time.

It is understandable that enthusiastic investors can fall into this trap. Younger clients in particular often have a short-term vision. This is driven by the idea that retirement seems so far away; a general lack of financial education; a cryptocurrency boom that attracts this audience by generating substantial, if volatile, returns; and the need to access capital quickly when getting on the property ladder is harder than ever.

Against this backdrop, it is crucial to seek advice from a wealth management expert, who will tailor a long-term financial plan to your personal goals. And experts will almost always tell you that slow and steady wins the race.

When advice isn’t accessible, building financial literacy skills – one of our key missions – will help people manage their finances more effectively.

Align goals with long-term investments

From most conversations I have with investors, it is clear that they understand the volatility and potentially large losses associated with a short-term asset management strategy.

There is also a widespread understanding of the counterpoint that when wealth grows gently and steadily over time, the returns are worth waiting for.

It is imperative to recognize an investor’s unique objectives from the start. If that also includes the desire to get rich quickly, we teach them what good investing looks like. It sounds boring, but it will keep them from experiencing the roller coaster ride of a short-term investment strategy.

All this requires a lot of patience and a long-term mentality.

Any wealth management plan will likely last for decades. Putting this in place means focusing on the end goals first and then working backward, to ensure your finances perform well over time.

Get your asset management plan in order

Wise investing is essential for successful asset management. Careful consideration is given to the way in which risks are spread. While a get-rich-quick scheme might focus on a single investment opportunity, which could go seriously wrong and lead to heavy losses, long-term asset management thrives through diversification.

By that I mean a financial plan that allocates the individual’s funds across a global portfolio, covering a range of sectors, geographies and asset classes. Unlike investing in a single stock or instrument, losses would be minimized if one element of the diversified portfolio came under pressure – rather than the entire investment being wiped out at once.

There are numerous tax wrappers that allow one to hold a variety of mutual funds in the market, offering the opportunity to earn a steady stream of income over time:

• Is like
• Pension (over 55)
• Investment bonds
• General investment accounts

The underlying investment may consist mainly of shares; or fixed income; or a mix of both. It largely depends on the individual’s attitude to risk and when he or she plans to withdraw money – something else a well-prepared financial plan will indicate.

Putting your finances on a solid foundation

Starting at the end also means paying close attention to the assets you expect to own when you die.

When building cash flow models, we assume that a person will die at the age of 100 (currently 12 years higher than the average life expectancy). For modeling purposes we also take into account a growth of 5% per year on investments, an interest rate of 2% per year and an inflation of 2.5% per year. This helps to determine whether the person would run out of money and use up all their liquid assets before reaching 100, or die with any assets left.

Ideally, someone who dies leaves an inheritance. This brings estate tax considerations into the equation; but the client’s needs are the first priority and tax planning can follow.

Of course, personal needs and goals change over time. The plan should therefore provide a degree of flexibility, with regular financial reviews taking place.

Follow all the steps I’ve outlined above and you’ll remain on solid financial footing in the long run, rather than risking your wealth in pursuit of short-term gains that may never materialize.

Just as an avid gardener would plant seeds and patiently wait for them to bloom, you can take a step back and watch your long-term wealth management plan begin to bear fruit.