As you gradually accumulate more wealth and more assets, you’ll grow increasingly concerned with how to protect them. A sharp dive in value, a natural disaster, a legal incident, and more threats could all potentially sabotage or eliminate the value of your holdings—unless you take proactive action to keep your assets safe.
So what are the best ways to protect your assets long-term?
One of the best protective measures you can take is insurance, which can protect your assets directly in the event that they are damaged, and indirectly in the event that you face legal action.
- Auto insurance. In most areas, you’re required to have auto insurance, but you’ll want to shop around for the best auto insurance policy. Ideally, you’ll get total protection, including protection for collision, uninsured motorists, and theft. You’ll also want a policy with significant liability protection; otherwise, you might be required to foot the bill for any damage to persons or property you indirectly cause in an auto accident.
- Home insurance. If you have a mortgage, you’re likely required to have home insurance. Even if you don’t, it’s vital that you have a good insurance policy to protect your property. There are many circumstances that could endanger your property and the people in it, and a home insurance policy could hypothetically protect you from all of them, including theft, vandalism, natural disasters, and liability issues. Just make sure you understand what the policy covers; there are some common costs that require a separate policy.
- Liability insurance. It may also be a good idea to get liability insurance, especially if you own a business. You can, for example, get an umbrella insurance policy that protects you in matters above and beyond what your other insurance policies cover.
Another important step in protecting your assets is diversifying your portfolio. If you have all your monetary wealth held in a single asset, like one business, one property, or one type of stock, it could end up hurting you when the value of that asset unexpectedly plummets. These fluctuations are hard to predict in every realm, and often arise unexpectedly.
However, you can protect yourself by distributing your wealth among many types of assets. For example, in your brokerage account, you’ll want to hold a variety of stocks (or an ETF that holds many stocks for you), bonds, and index funds. You may also want to own some real estate, and some tangible assets like gold. That way, no single unexpected fluctuation can seriously jeopardize your net worth.
Over time, it’s important that you re-diversify and rebalance your portfolio to more accurately reflect your current risk tolerance. For most people, this means gradually shifting your portfolio to be more conservative; in other words, moving your money out of volatile assets like individual or low-cap stocks, and into more stable assets like bonds.
You may also be in a position to consider how you’ve allocated your assets. Holding all your assets as an individual could be problematic for you in the long run. Instead, consider how you may be able to distribute them in these areas:
- Business entities. If you own a business, you could treat it as a protective holder of some of your assets. If you don’t own a business, you may consider creating one for this purpose. LLCs and corporations are treated as separate legal entities, and are capable of owning their own assets, like properties and vehicles. Executing this strategy properly (and legally) means you could continue indirectly owning your assets, while owning the company that owns them, and simultaneously keeping them separate from your other holdings as an individual.
- Spouses. If you have a spouse, you may be able to distribute your assets with them. Depending on the circumstances, you can likely make a tax-free gift to your spouse; this means you can transfer capital or physical assets to them, so long as you trust them. In many cases, it’s better that you each hold some assets individually, rather than having them all tied to one person.
- Descendants. If you’re getting older, you may also consider transferring some of your assets to your children, or other people you wish to inherit your wealth. This not only helps you protect your assets by distributing them to other individuals; it also gives you more control over how your wealth is distributed toward the end of your life.
Protecting your assets requires you to take several proactive steps, some of which require ongoing maintenance for the rest of your life. The chances of suffering a catastrophic loss, whether it’s from a stock market crash or a natural disaster, may be low, but you’ll be glad you took these preventative and protective measures if the worst unfolds.
Image Credits: Protect Your Assets from Sasun Bughdaryan/Shutterstock