What Would Happen If You Lost Half of Your Wealth

April 29, 2014

pic_integrated_wealth_managementThere’s always one major goal in investment planning. For both financial advisors and their clients, the main goal is to watch the net worth of their clients increase gradually over time. However, the most worrying aspect of investment is the risk of losing a significant portion of the portfolio due to unforeseen events. Regardless of meticulous planning, there are situations that can severely damage the portfolio. Some of such financial catastrophes are:

Unpredictable Swings in the Stock Market
As per the Dow Joes 30 Industrial Average, the greatest single day decline in the stock market value happened on October 19, 1987; when the US Equity markets lost 22.61 percent of market capitalization. The dreadful loss of paper value could have been avoided if investors kept an eye on the long term goals, and refused to sell. Same thing happened during the recent financial crisis, as well.

It might be a myth that half of the marriages end up in divorce, nonetheless, the numbers are pretty high in the United States. Facing a divorce has severe financial consequences as property settlements often divide the assets evenly. If you are a divorcee and remarried, it is important to change the beneficiary of your qualified plans, IRAs and life insurance policies to your current spouse to avoid leaving assets to your former life partner.

Not Leaving a Formal Estate Plan
Dying without leaving a formal estate plan may not qualify your assets for tax exemption. American citizens are entitled to a 5.34 million dollar estate tax exemption in 2014. Once you die, your surviving spouse can file an estate tax return, even when no estate tax is due. Later, they can use the exempted estate tax. Not leaving a formal estate plan will deprive your family and they will end up paying unnecessary tax to the government.

Sudden death of a key person in a privately-held business
If a key person who has a stake in a privately held business dies, then the business may need to be sold to generate liquidity to cover estate taxes that are usually due within nine months of the owner’s death. The good news is that having a Key Person Insurance Policy can help avoid such situation.

Regardless of how uncertainty may wish to dictate the fate of your wealth and legacy, you can always take measures to protect your estate and provide for your family and loved ones. Please contact HFG Wealth Management to learn more about how we can help you manage investment risk, develop an estate plan or help you with business succession planning strategies.

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The material presented on our website is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. Important: all investing is risky, and no investor should decide to commit funds without first consulting with a competent professional adviser.



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