The Gervais Group

Today I would like to share four financial areas that you simply must handle well if you want to pass your wealth on to future generations.  The areas are:  investments, insurance, debt, and taxes.

First is investments. In one sense investment strategies are simple: you put money into an opportunity that you expect will give you a good rate of return. Some areas of investments are more secure but promise smaller growth. Others have the potential for greater growth but also pose greater risk.

Based on your needs, you should determine an asset allocation that maximizes your results for the level of risk you assume. From there, you should diversify your portfolio so you’re not putting all your financial eggs in one basket.

Second, is insurance. Insurance is about protecting your capital—both your financial assets, and even more importantly, your human capital, which we define as the present value of your future earnings capacity. Typically, when you’re young, you have more human capital, and less financial capital. When you’re older, that ratio flips. Your insurance should cover your human capital: you usually need more when you’re young, and less when you’re old.

There are two main types of life insurance: term and permanent. Term is the most common type – it covers you for a certain amount of time or up to a specified age. Its main function is to protect your family and cover your debts. Permanent insurance policies are guaranteed to provide a death benefit for your lifetime, and are an excellent tool for those who like the idea of leaving each child or grandchild an inheritance.

Our third topic is Debt. Debt can be an integral tool for your investment and growth. Wise use of debt allows you to use money you don’t have to build wealth and accelerate returns. Here’s some good advice to pass on to your children and grandchildren: if you want to do much of anything as an adult—like get a mortgage or start up a business—you need good credit. You build up your good credit through responsible financial behavior. Pay off your credit card every month and pay your bills on time.

Finally, let’s talk taxes. Taxes are always changing, which can make a huge impact on how you make investment decisions. By working with a CPA on your taxes along with your financial advisor on distribution and investment strategies, you can benefit from a team who will work together to help you feel more in control about your tax obligations. Left to your own devices, you may not fully consider the impact taxes could have on your financial picture.

If you aren’t wise about how you manage your taxes, you can end up giving too much of your money away to the government. The rate of return for making good tax decisions can be as impactful as your investment returns.

Investments, insurance, debt, and taxes: these four topics may seem dissimilar, but, when handled well, they are the building blocks for a strong financial future.

If you’d like to get a better handle on any of these areas, feel free to give us a call.