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  • Mark Fonville, CFP®

High-Net-Worth Investment Strategies for The Next Decade

High Net Worth Investment Strategies for the Next Decade

As someone with a high-net-worth, you have a few specific considerations to consider regarding your investments.

The basic principles still apply—having a plan, diversification, fee management, and taxes—but you need to think beyond standard investment advice.

You can use our free spreadsheet to help you see the different limits and tax rates that may impact you.

Here are a few high-net-worth investment strategies to keep on your radar.

Traditional Portfolio Management

The foundation of your investment plan should be a well-balanced portfolio that considers your goals, risk tolerance, and time horizon.

Exchange traded funds, also known as ETFs, make it easy for you to build a scalable and manageable portfolio. This is particularly important as you near or enter retirement. In particular, as a high net worth investor, you may consider focusing on ETFs rather than mutual funds because they are generally:

  • Tax-efficient

  • Low cost

  • You’ll typically also may have fewer “surprise” fees with ETFs.

  • Broadly diversified

Keep in mind that your investment portfolio will comprise a wide range of securities that fit your goals, time horizon, risk preferences, and more.

As a financial firm specializing in high-net-worth clients, we can help you tailor your investment strategy to help you build wealth sustainably over the long term.

Tax Planning

Alongside portfolio construction and management, one of the most significant distinguishing characteristics of high net worth investment strategies is the importance of directly incorporating tax management into the investment plan rather than addressing it separately.

Many high-net-worth individuals make the mistake of making investment decisions without taking into account their total tax picture. Investing without tax management can create huge tax mistakes and reduce your wealth over time.

While taxes don’t have to be in the driver's seat at all times, they should be a central consideration as you select and manage your investments. Tax considerations can also help drive the selection of different types of accounts that you'll invest in throughout your life.

Let’s take a look at some of the most common.

Account Types

Workplace Qualified Retirement Plan

If you have access to an employer-sponsored retirement plan like a 401(k), that should be your first stop. Take full advantage of the annual contribution limits to your retirement accounts (Don’t forget the catch-up if you’re 50 or older). If you can choose Roth contributions, that's something worth exploring. Unlike a Roth IRA, Roth 401k contributions don’t phase out because of your income.

Also, consider whether making after-tax contributions up to the annual additions makes sense for you. Doing so may allow you to move a significant amount of money into a Roth account by making mega backdoor Roth contributions.

Mega backdoor Roth contributions can be a powerful strategy for high income earners who earn in excess of $214,000 for married filers and $144,000 for single filers.

Taxable Brokerage Accounts

Many high-net-worth individuals have a significant amount of savings outside of tax-advantaged accounts. You should have a deliberate plan for addressing taxes when investing in a brokerage account.

Here are some things to consider:

  • Leverage long-term capital gains when possible. Long-term capital gains are generally taxed at more favorable rates than regular income, but you’ll need to hang onto your investments for at least a year to be eligible.

  • Strategically realize capital gains. You pay taxes in your brokerage account when you sell your investments. Perhaps you’ll realize some gains in an otherwise low-income year or a year where you plan to make significant charitable contributions.

  • Employ tax-loss harvesting. Not all of your investments will earn money all the time. So if you have an asset that’s losing money, you could capitalize on it and claim it as a capital loss. You can use tax-loss harvesting to offset higher gains and use up to $3,000 in losses to reduce ordinary income. When tax-loss harvesting, be mindful of the wash-sale rule. The wash-sale rule keeps investors from selling and buying identical or similar investments within 30 days of the sale. What a lot of people don’t know is that the wash rule can be triggered if you sell a stock in one account and repurchase it within thirty days in another account. Be careful!

At Covenant Wealth Advisors, we often analyze the impact of realizing long-term capital gains and implementing tax-loss harvesting strategies by reviewing your tax return as well. We suggest that you do the same.

Asset Location