In today’s fast-paced, uncertain, and inflationary economy, it’s essential to have a solid financial plan that not only preserves your wealth but also helps it grow.
Let me begin by giving some insights into the meaning of wealth preservation and economic uncertainty.
Wealth preservation involves a strategic approach to safeguarding and growing one’s assets over time, protecting them from the negative forces of market volatility and unforeseen events.
Economic uncertainty refers to a situation in which the future economic environment is difficult to predict and there is a high degree of risk or unknowns involved. This can be caused by a variety of factors, including political instability, changes in government policies, micro- and macro-economic factors, and market fluctuations.
Economic uncertainty can lead to a decrease in economic activity as people and businesses become more risk-averse. The identified sources of economic policy uncertainty in Nigeria are frequent changes in the apex bank’s (Central Bank of Nigeria) policy, unexpected changes in government policy, political interference, an unexpected fall in the global oil price, and a recession.
In preserving wealth during economic uncertainty, one must consistently sustain the purchasing power of their wealth over the long term and ensure it is available for transitioning to future generations.
The major strategies used to preserve wealth in uncertain times are:
- Financial Planning and
- Portfolio Diversification
Financial Planning
Financial planning is a tool used to accumulate and preserve wealth. It involves an assessment of your current financial situation and creating a plan, specifically around the management of finances and preparation for the potential costs and issues that may arise.
Creating a financial plan is important because it allows you to make the most of your assets and gives you confidence that difficulties along the way will be surmounted.
Financial planning during uncertainty, particularly inflation, can be quite challenging; all it takes is discipline and consistency.
Steps to Financial Planning
- Find a certified financial advisor. Consult with a financial advisor who can provide personalised guidance based on your specific financial situation and goals.
- Review/Assess your current financial situation. This is required to evaluate your current financial standing. It includes the calculation of your net worth, and tracking your income, expenses, debts, and investments. Revisit your budget and look for expenses that can be reduced or eliminated.
- Identify your goals – Your goals must be SMART
Specific: Clearly state your goal e.g. I will save N1m in 6 months which is 20% of my salary.
Measurable: Ensure you can measure success. For instance: save N167,000 monthly.
Achievable: Set goals you know you can achieve e.g. It is 20% of my salary and it is achievable.
Releant: Set goals relevant to your life e.g. This helps with the payment of my house rent.
Time-Bound: Set a deadline for completion e.g. 6 months. - Design a plan – Set up a structure. Do I invest in a mutual fund, or do I buy stocks? Do I set up a monthly direct debit?
- Execute the plan – Set up an emergency fund by investing in the mutual fund. Set up a life and health insurance plan.
- Review and refine – It is advisable to have a quarterly review of your investments and plan.
Portfolio Diversification
Portfolio Diversification is important in considering investments that have the potential to outperform inflation. Some of these investments include stocks, real estate, and commodities, and have been proven over time to protect the purchasing power of your assets.
Review your portfolio regularly and adjust your asset allocation when needed to stay on track toward achieving your financial goals.
Looking to speak to a financial advisor to help you preserve your wealth? Call us on 0700-NORREN, 234 (0) 908 781 2026 OR send an email to customerservice@norrenberger.com.
