Before we dive into developing a high-net-worth investment plan, it’s important to understand what you’re investing toward or, in other words, the purpose of each financial goal.
The first objective of any new investor should always be to create an emergency or rainy-day fund; while often thought of as important for lower net-worth individuals, it is also true for HNWIs. Despite having more wealth to deal with unexpected expenses, it may not always be immediately available, whether it’s going toward paying down debts or tied up in illiquid investments. Regardless, it’s best to have an adequate emergency fund to support your lifestyle when cash flow cannot. We generally recommend that an emergency fund should be anywhere between three to 24 months of spending needs, depending upon the stability of your income.
Outside of establishing financial safeguards, investment objectives for the average person are often geared more toward day-to-day life or significant milestones. For instance, common goals include:
- Purchasing a new car
- Buying a home
- Supporting a family
- Saving for college
- Preparing for retirement
- Leaving behind an inheritance
Of course, a short-term goal like buying a new car might not carry as much weight with every HNWI, but long-term considerations, such as paying off a mortgage on real estate property or creating a retirement plan, are universally critical. After all, you’ll likely want to plan for your investment portfolio to help keep you afloat and living comfortably long after retirement age. And when it’s your time, you’ll want to make sure your family receives as much of your wealth as possible. That’s why retirement and estate planning are essential, no matter what your net worth is.
However, HNWIs tend to have other, more unique investment goals, whether it’s starting a business or investing in commercial real estate, such as apartment buildings, industrial facilities or shopping centers. In addition to these ventures, they also must deal with the added complexities of an expansive investment portfolio.