Protecting your wealth is fundamental but going too far can lead to loss of potential growth. Douglas Boneparth, president of Bone Fide Wealth, points out that wealth protection is about foreseeing major threats to your wealth and addressing them in a cost-efficient manner. However, indicators such as having more than 75% of your assets in cash or short-term bonds, having unnecessary overlapping insurance coverages, and avoiding growth-oriented assets, suggest overprotection.
This tendency is not limited to those at or near retirement age, it can also be seen among young people in their 30s and 40s. Overprotection in terms of stocking up excessive cash, investing too conservatively, or carrying more insurance than required can lead to loss of income growth.
Overprotection to extreme levels can impede your retirement savings. For instance, high fees on annuities can mitigate your returns while excessively allocating your portfolio to CDs, money market funds, and fixed income may offer trivial interest rates in low-interest environments.
On the contrary, proper wealth protection strategies involve diversifying your portfolio for optimum growth and periodically rebalancing your portfolio to maintain alignment with your financial goals.
Carla Adams, founder of Ametrine Wealth, suggests a diversified investment strategy with the right mix of bonds for stability and moderate growth, and stocks for meaningful portfolio growth over the long term.
Additionally, only purchasing necessary insurance policies can save you from potential premium stacks. Essential insurance policies include health, disability, renters or homeowners, and auto.
Thus, while it’s important to protect the wealth you've accumulated, you should not let it inhibit your wealth's ability to grow. Overprotection may indicate if you have excessive cash or short-term bonds and unnecessary or doubling insurance coverage. To achieve balance between capital preservation and growth, creating a diversified investment portfolio and avoiding unnecessary insurance policies should be taken into account.