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3 Ways to Make a Greater Impact with Your Wealth

3 Ways to Make a Greater Impact with Your Wealth

If you’re the beneficiary of a windfall, a prudent first step is to develop a financial plan to ensure you can meet your day-to-day financial obligations and long-term goals. However, affluent individuals and families often have more altruistic goals for their wealth, as well. Fortunately, there are many ways you can effect change by strategically directing your money to organizations and businesses that share your values. Whether your objective is to change the world, shape your legacy, or simply lower your tax bill, here are three ways to make a greater impact with your wealth.

#1: Support Local Businesses

Shopping local is a great way to strengthen your community by boosting the local economy and providing jobs for residents. In fact, for every $100 spent at small businesses, $48 is put back into the local economy, according to data from Intuit Mint. Furthermore, the Small Business Administration reports that small companies create 1.5 million jobs annually and account for 64% of new jobs created in the United States.

In addition, shopping local can help reduce reliance on larger chains with less commitment to their communities. These larger corporations may also have less responsible business practices than the businesses in your community. If you want to make a greater impact with your wealth, supporting local businesses is a great place to start.

#2: Give Strategically

Americans tend to be very charitable. Indeed, charitable giving accounted for 2.3% of gross domestic product in 2020, according to National Philanthropic Trust. Moreover, 86% of affluent households maintained or increased their giving in 2020 despite uncertainty about further spread of COVID-19.

Despite our charitable tendencies, most of us fail to measure the impact of our gift after writing the check. Fortunately, you can make a greater impact with your wealth by giving more strategically.

For example, donor-advised funds (DAFs) are an effective and easy way to financially support the causes most important to you. DAFs have exploded in popularity in recent years. In 2020, assets totaled $142 billion, according to the 2020 Donor-Advised Fund Report. DAFs are set up within a charitable organization such as a community foundation. Among other benefits, they offer increased flexibility and efficiency over many other charitable giving methods.

#3: Invest with a Purpose

Environmental, social, and governance (ESG) investing is becoming increasingly mainstream among investors who want to do well by doing good. According to research from Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management. 

There are many ways to invest with a purpose. Impact investing, socially responsible investing, and green investing are just a few examples. These strategies allow investors to support companies with responsible business practices while earning a positive return.  If you wish to make a greater impact with your wealth, aligning your investment dollars with your values can help you achieve this goal without sacrificing financial gain.

A Trusted Advisor Can Help You Make a Greater Impact with Your Wealth

Wealth can help you achieve many goals, from providing financially for loved ones to effecting meaningful societal change. If you would like to make a greater impact with your wealth, a trusted financial advisor can help you develop a plan to ensure your efforts are effective.

Sherwood Wealth Management specializes in the unique financial planning needs and objectives of sudden wealth beneficiaries. If we can help you develop a plan for your newfound wealth, please do not hesitate to schedule a call. We’d love to hear from you.   

5 Tips for Better Investment Performance in Any Market

5 Tips for Better Investment Performance in Any Market

Volatility is the price equity investors pay for earning higher returns on their cash over the long term. Unfortunately, many investors can’t stomach the fluctuations of the stock market and end up making poor investment decisions. For example, investors often sell and go to cash when the market declines and subsequently fail to re-enter at the right time to benefit from its recovery. In fact, approximately 70% of the average investor’s underperformance occurred during 10 key periods since 1984 when investors went to cash at the wrong time, according to research from Dalbar. Indeed, many of the mistakes we make as investors are emotionally driven. And these mistakes can cause us to fall short of important financial goals. Fortunately, there are strategies you can use to achieve better investment performance in any market.

For better investment performance in any market, consider these five tips:

Tip #1: Diversify Your Investments

It can be tempting to chase after the best-performing investments, especially when you feel like other investors are making more money than you are. However, concentrating your assets in too few investments can leave you unprotected if markets suddenly turn. As Warren Buffett famously said, “Only when the tide goes out do you discover who’s been swimming naked.”

For better investment performance in any market, it’s important to diversify your wealth across asset classes, geographies, and investment styles. Remember, a 20% investment loss requires a 25% gain just to break even. You may sacrifice your upside potential by diversifying, but you also reduce your downside risk. And fewer losses make it easier to build wealth over the long run. 

Tip #2: Avoid Checking Your Account Balance Too Often

Nobel Prize-winning behavioral economists Daniel Kahneman and Amos Tversky found that investors who check their account balances frequently are less willing to take on risk. This aversion to risk ultimately causes them to fall short of their financial goals. 

A healthy amount of risk is necessary to grow your assets over the long term. However, if you’re prone to panicking when markets fall, try checking your account balance less frequently. For example, check once per quarter rather than daily or weekly. It may sound counterintuitive, but paying less attention to your investments can help you achieve better investment performance in any market. 

Tip #3: Rebalance Your Portfolio Periodically 

If you’ve developed an investment strategy that’s aligned with your financial goals and personal circumstances, you shouldn’t need to make frequent changes to your portfolio. In fact, research has shown that trading too often can hamper investment performance over time.

Still, as markets rise and fall, your asset allocation can drift from its original targets. When this happens, the overall risk and return profile of your investment portfolio changes. To ensure your portfolio stays aligned with your future goals and risk tolerance–and to maximize your results over time–it’s important to rebalance periodically. In other words, realize gains from investments that have risen in value and use the proceeds to buy more of the investments that have declined in value. 

Tip #4: Control What You Can

A good part of the investment experience is outside of our control. This is why timing the market is so challenging. It’s difficult, if not impossible, to accurately predict the direction of financial markets consistently. 

Fortunately, there are some aspects of investing that are within our control–for example, fees and expenses. High investment costs eat away at returns over time, regardless of market direction. In fact, Morningstar found that the average fund expense ratio fell to 0.41% in 2020 from 0.44% in 2019. As a result, they estimate investors saved nearly $6.2 billion in fund expenses last year. Morningstar’s analysis demonstrates how simply controlling costs can lead to better investment performance in any market. 

Tip #5: For Better Investment Performance in Any Market, Consider Working with a Trusted Advisor 

Finally, working with a fiduciary financial advisor may help you achieve better investment performance. For example, a financial advisor can help you implement the preceding four strategies efficiently and consistently. 

In addition, one of the benefits of working with an advisor is that we take a proactive approach. Rather than reacting to market performance, we help you develop an investment strategy that you can stick to in any market environment. We also help you avoid impulsive decisions, like going to cash when markets decline. These seemingly simple actions can help you achieve better investment performance in any market and reach your financial goals. 

Sherwood Wealth Management specializes in the financial planning needs of sudden wealth beneficiaries. If we can help you develop and implement a personalized financial plan and investment strategy for your windfall, please contact us. We’d be happy to hear from you.