Savings Strategy: For High Net Worth Individuals

by Patrick Evans, Senior Wealth Advisor

September 19, 2024

High net worth individuals (HNWI) often focus on growing wealth through investments, but disciplined, strategic saving is equally important to maintain and protect assets. While traditional savings accounts may not offer significant returns, there are distinct strategies that, when executed in a consistent manner, can optimize savings for long-term financial security.

1.     Cash Reserve

A readily accessible cash reserve is crucial for handling immediate needs or acquiring time-sensitive investment opportunities. Grant Street recommends a reserve worth three to six months of expenses to be prepared for any financial emergencies. Consider using high-yield savings accounts or money market funds, which provide liquidity with a modest return.

2.     Tax-Advantaged Accounts

Even for those with significant wealth, tax-advantaged accounts like IRAs, 401(k)s, or Health Savings Accounts (HSAs) can provide valuable tax deferrals or reductions. Maximize contributions to these accounts, if eligible, to leverage tax benefits while securing retirement funds or healthcare savings.

3.     Pledged Asset Lines

Establishing a personal line of credit that utilizes your taxable investment accounts as collateral offers a flexible liquidity option without requiring the sale of assets (and realizing capital gains). These secured lines of credit, typically backed by liquid investments, provide quick access to funds with lower interest rates.

4.     Cash Management Strategies

Cash management strategies utilizing U.S. Treasury bills (T-bills) and short-term high-quality bonds offer a liquid alternative to traditional savings accounts with incremental risk. They often provide better returns than a savings account while maintaining relatively low risk, and they can be easily converted to cash when needed. These solutions are designed to help clients meet their cash flow needs while maintaining strategic portfolio liquidity.

5.     Trusts

Establishing a trust helps manage wealth with a true long-term time horizon and can offer significant tax benefits. Trusts can be structured to pass assets to heirs while minimizing estate tax, thus helping to preserve wealth across generations.

By using a mix of liquid assets and flexible credit options, HNWIs can ensure that liquidity is available when needed to navigate financial opportunities or challenges as wealth continues to compound and grow. By blending these strategies, HNWIs can enhance savings through growth, preservation, and tax efficiency, while continuing to work towards achieving long-term financial security.

If you’d like to discuss your current savings strategy or long-term goals with an experienced advisor, please reach out: 412-257-8060 or advisors@gsaminc.com.