Last month we focused on Person Wealth, the wealth generation capacity we have within us. This month we want to concentrate on Portfolio Wealth, our financial investments, and if applicable, our business and rental real estate holdings. Portfolio Wealth is “Vision Fuel” in the Natural Wealth® Process. Building adequate Portfolio Wealth, wealth sufficient to pay for our family’s financial life vision, is a primary objective in the Natural Wealth® Process.
We divide Portfolio Wealth into two categories; Core Portfolio Wealth and Supplemental Portfolio Wealth. Core Portfolio Wealth is the combination of assets that represent a significant portion of your overall Portfolio Wealth. Supplemental Portfolio Wealth assets represent a smaller percentage of your overall Portfolio Wealth. For example, a money-purchase pension plan, Registered Retirement Savings Plan (RRSP), or a family business (if applicable) can often make up a substantial portion of a household’s Portfolio Wealth. These would be considered Core Portfolio Wealth assets. A small balance in a savings account or Tax-Free Savings Account (TFSA) might be considered Supplemental Portfolio Wealth. During our lifetime, Portfolio Wealth Assets might gravitate back and forth between Core and Supplemental Portfolio Wealth depending on circumstances.
For the purpose of properly classifying assets in the Natural Wealth® Process model when we are discussing a family business, it is important to distinguish between a business (Portfolio Wealth) and being self-employed (Person Wealth). A business is an asset that can operate at least semi-autonomously of you. It has staff members and a structure that would operate whether you were on site and involved or not. If the business cannot function without you, then you are self-employed, and we are better served discussing the asset under Person Wealth.
If you have not already done so, take time in the next couple days to construct an annual Portfolio Wealth Statement based on asset values as at December 31st, 2017. This is your primary Portfolio Wealth scorecard. With this tool you can benchmark where you are and begin to assess where you need to be in order to realize your financial life vision. You are in a position to check your progress this time next year and every year thereafter.
By the middle of February you should have year-end statements available from all the companies where you hold financial assets. For those who hold business and rental real estate assets one can refer to the most recent financial statements and valuations for a representative value. With regard to business and rental real estate assets, be conservative in your valuations. Market values can fluctuate. Better to be conservative and realistic in our assumptions than to have a financial life plan damaged by overly optimistic assumptions.
If you have borrowed money to invest in investment assets make sure to input the amount borrowed in the space provided.
We are attaching a worksheet to aid you in constructing your household Portfolio Wealth Statement. If you are a couple (married or in a common-law relationship) make sure to distinguish what assets are yours individually and what assets are joint. Do the same with any amount borrowed to invest. This is important for tax and estate planning purposes going forward. We will discuss this in more detail in April and May.
You will notice that we are not including houses, cottages (if applicable) and other property assets (we call this Possession Wealth) on this worksheet. We will discuss Possession Wealth in more detail next month.
Call or mail us if you need help in constructing your household Portfolio Wealth Statement. If you would like to provide us with a finished copy of your statement we would be happy to review and discuss it with you.
David J. Luke, CFP, RFP, CLU, CH.F.C., CIM | Financial Advisor
360 Private Wealth Management | Manulife Securities Incorporated
Unit 1 – 25 Scurfield Boulevard, Winnipeg, MB R3Y 1G4
Main Office 204.925.5868 | Direct 204.925.2073| Fax 204.925.2263 | Toll Free 844.688.3656