Five Reasons Investing Gets Harder as You Get Wealthier

June 7, 2018 - John Osbon (3 mins to read)

It’s a paradox of wealth. As your net worth grows and you start thinking investing will finally get easier, you may find the opposite is true. It turns out that choosing the right investments and financial advisors can become more difficult, or at least more confusing, as you amass assets. Here are five reasons why.

1. Instant popularity. With increased net worth comes new attention you may not want, including the relentless sales pitches of brokers, personal bankers, investment advisors and money managers. The more you have, the more options become available to you. But just like on a fifty-page wine list, having more choices doesn’t make life easier.

2. The lure of the complicated. When you have money you quickly find there are all sorts of investment options out there that you’ve never heard of, from sophisticated private equity funds and elaborate hedges to tempting “can’t miss” derivatives. In sifting through the options, it is easy, even natural, to be attracted to needlessly complex plans and products. Unfortunately, many of these options, if you can even decipher what they are, come with high risk and hefty fees.

3. Affinity for risk. Many successful entrepreneurs attain wealth by embracing business risks that others shun. This risk habit can be a tough one to shake; it follows some investors into the financial markets where it may lead to poor investment choices.

In truth, for most wealthy individuals, capital preservation is a more appropriate goal than trying to generate the highest possible return. Making the mental shift toward a more prudent, less risky strategy is a challenge for many. See our post on this topic.

4. Tax blindness. Let’s face it; what really matters in investing is what’s left after taxes. Ironically, much of the investment industry pretends to ignore this fact.

Because pre-tax returns are generally much higher than after-tax results, it is convenient for sellers of many financial products and services to heavily promote pre-tax returns and ignore after-tax results. This leaves wealthy investors in the dark or doing the research themselves to fill the tax information gap.

5. Do-it-yourself syndrome. If you are tempted to manage your own portfolio, you’ll have to dodge a long list of mistakes that plague all investors, including poor asset allocation, inadequate diversification, reliance on past performance in selecting investments, insufficient focus on costs and fees, overconfidence in areas of limited experience and the tendency to chase investment fads. While all of these performance problems can be improved through experience, the time and learning commitment necessary to do so is prohibitive for all but the most dedicated investors.

Your best defense

You’ll never completely eliminate the complexity that comes with greater wealth; it’s just a fact of life. But you can insulate yourself from the distraction and confusion by working with an experienced advisor. The advisor can help keep you focused on the basics — creating a risk-appropriate, diversified, tax-efficient and low expense portfolio and staying focused on long-term goals and results. Just be sure to choose an independent advisor who is not paid by fund companies or others to promote specific products.

If your hard work has paid off with a growing net worth, now may be the right time to talk to an advisor. We find most high net worth investors experience a sense of relief when they can pass the baton for wealth management to a trusted professional.



Weekly Insights

delivered to your inbox


This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.

Weekly Articles by Osbon Capital Management: