Personal FinanceCanva | StockLite and DAPA ImagesMarc GubertiWhen investors get started on their journey, they look to accumulate as much wealth as possible. The first $100,000 is the most challenging milestone, but wealth compounds more easily once investors reach that point.However, the mentality shifts once an investor ends up with millions of dollars in their portfolio. Growth remains important, but investors start to prioritize wealth preservation. This new priority gains more significance as wealth continues to grow.A Redditor finds themselves in this situation and shared a post in the Fat FIRE subreddit. The individual has a successful construction company that helped him amass a $7 million portfolio. The individual has $3 million in a 60/40 portfolio, $500k in a 401(k), and $3.5 million in real estate.I’ll share some of the ways investors like the Redditor can minimize risk in these scenarios. The Redditor specifically mentions asset protection in the event of bankruptcy or a lawsuit, so the insights will be geared toward those concerns. However, it’s good to speak with a financial advisor if you can.
Umbrella insurance is one of the best ways to shield your business, but some companies may need additional policies.
Storing cash in a retirement account and using LLCs can also help with wealth preservation.
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Retirement Accounts Offer More Protectionsinsta_photos / Shutterstock.comIndividuals who want to minimize the risk of a lawsuit or bankruptcy taking out their finances may want to contribute the maximum amount to their retirement accounts. 401(k) plans offer more leverage, as the Employee Retirement Income Security Act (ERISA) protects these accounts from creditors and lawsuits. These accounts are also protected from Chapter 7 bankruptcies, which allow you to preserve a lot of capital under the worst-case scenario.Individual retirement accounts offer the same protections, but the level of protection you receive varies for each state. Furthermore, there is a limit to how much you can protect from a Chapter 7 bankruptcy. Right now, the limit is a little over $1.5 million. Any excess balance is not protected from a Chapter 7 bankruptcy, but this amount is adjusted every three years due to inflation.An Umbrella Insurance Policy May Help Business Owners zimmytws / Shutterstock.comThe amount of insurance a business owner needs depends on their line of work. People who are offering online products and services don’t need as many safeguards as business owners in the construction industry. The Redditor does well in construction and may want to upgrade their umbrella insurance to mit