Insights Into Wealth Cycle

Most individuals and families go through a series of financial events during their lives. As they pass each of these stages, their financial strategies need to change to reflect their evolving needs and financial circumstances.

RALPH Waldo Emerson, an American author in the early 19th century, once said: “It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires 10 times as much skill to keep it.”

Even back then, the West understood the importance and the difficulties of accumulating and preserving wealth. They discovered that everyone goes through a lifecycle that consists of different stages and each phase calls for certain financial needs and objectives they want to achieve.

These different stages are known as the “cycle of wealth”. Our Western counterparts have actively practised this concept, as they understand the significance of the cycle and the important role it plays in building and sustaining one’s wealth.

Via a simple research, we found that a majority of Malaysians has yet to adopt the wealth cycle formula. Instead, Malaysians tend to manage their wealth in fragments with most concentrating on wealth creation and enhancement, and often ignoring preservation and distribution.

Neglecting any of these cycles will impact on one’s retirement and can result in insufficient means to provide for family members or even future generations. Taking the right steps in accordance to the wealth cycle can reduce financial uncertainty and financial distress.

The wealth cycle is commonly known to consist of four pillars – creation, enhancement, preservation and distribution.

“Wealth creation”, also known as “start-up”, is the first pillar of the cycle. It plays a vital role in forming the base for the wealth accumulation process.

“Wealth creators” are individuals who are in the early stages of their professional career and they tend to have larger financial responsibilities such as mortgages and credit purchases. Typically, their liabilities tend to be higher than their income.





Financial decisions tend to be mostly short term and they often adopt the characteristic of an aggressive investor, seeking ways to maximise the returns on their assets.

Once wealth is established and created, these individuals – by now in their mid to late career life – would shift their focus to “wealth enhancement”. The primary objective of this cycle is to multiply or enhance the returns on the accumulated assets with lower risks or better capital protection.

This is where with proper asset allocation, they are able to determine areas of financial interest and investment products that suit them in order to generate more income. Managing the acquired wealth is also crucial at this stage, taking into account tax considerations and debt management.

“Wealth preservation” starts when one has built up a substantial amount of wealth. The key strategy is to ensure that wealth is well managed with protection being the key objective. At this stage, the portfolio is managed with greater focus to generate income, while minimising risk.

Many times, individuals or families fail to anticipate and prepare for this cycle. They focus on accumulating wealth only to lose almost everything in the end as a result of not having proper wealth management structure.

Finally, the “wealth distribution” phase is where one ensures that one's assets or wealth and even business are transferred or distributed in the most optimal way and according to one's wishes. This is also a stage most individuals and families often ignore.

Estate and succession plans should be put in place well in advance to ensure that the family wealth and the reins of the family business are handed over to the following generations in an orderly manner.

Too many people have learned that making a fortune is the easy part. “In the long run,” cautions multi-millionaire entrepreneur and educator Robert T. Kiyosaki, “it’s not how much you make, it's how much you keep, and how many generations you keep it.”

As such, wealth distribution through the use of mechanisms such as trusts and wills would make certain that one’s wealth will last over many generations, thus ensuring a legacy of prosperity that every individual dreams of.

It is every individual’s dream to have financial freedom at retirement or at the very least, most hope to be free from any debt obligation. This is achievable if one were to diligently practise the management of wealth cycle accordingly.

In essence, one needs to understand that the key to success in using the wealth cycle is to know what steps to take and in what order.