Nothing is more satisfying for advisors and their clients than planning, investing, and watching net worth gradually increase. And, nothing is more disheartening than having a significant portion of portfolio value disappear as the result of an unanticipated event.
There are many situations that can affect portfolio value. Many of them can be avoided. Here are a few to be wary of:
- Upheaval in the stock market. The greatest single day decline in stock market value, as measured by the Dow Jones 30 Industrials Average, was October 19, 1987. On that day the market lost 22.61 percent, according to The Wall Street Journal. Keeping your eye on long-term goals may help overcome the feeling of panic that market volatility can inspire.
- Divorce. Today, more than one-half of all marriages in the U.S. end in divorce. Property settlements often divide assets evenly, which can significantly diminish your personal wealth. If you have divorced, it is important to change your beneficiary on qualified plans, IRAs, and life insurance policies. If you don’t, your assets may end up going to your ex-spouse rather than your current spouse and/or children.
- Dying without a formal estate plan. If you die without a formal estate plan, your estate tax exemption may not be properly applied and could result in tax dollars being paid to the government unnecessarily. Each American has an estate tax exemption of $5 million through 2013. If a surviving spouse files a properly completed estate tax return, even when no estate tax is due, he or she can later use his or her unused estate tax exemption, plus the unused exemption of the deceased spouse.
- Dying without a will. In many states, if you have minor children and fail to leave instructions for guardianship, your children are entitled to one-half of the property of the deceased parent. Without a valid will, a guardian can be appointed by the court. That guardian will control the assets of any minor children. If the surviving spouse is not named as guardian, then he or she may have little say in how funds are spent or invested on behalf of their children.
- Untimely death of a key person in a privately-held business. The value of a family’s business may be reduced dramatically by the death of a key person. In some cases, it may be necessary to sell the business to create the liquidity necessary to pay the estate taxes, which generally are due nine months after the owner’s death. Key man insurance can help prevent this.
Regardless of the unwelcome surprises life may hold, you can often protect the wealth you’ve accumulated.