How Fortunes Fail: The Biggest Mistakes You Can Make with Your Investments

July 12, 2023

By Francis L. Ostrom, III, CFP®, CBEC®, Director of Financial Services

Nobody wants to watch the wealth they’ve worked to build and protect simply disappear. But the truth is that people lose fortunes all the time.

Here’s a look at eight mistakes most often made by high-net-worth individuals as identified by Davie Kaplan’s wealth management team. We can help you protect your wealth and your fortune by avoiding these mistakes.

MISTAKE #1: Failing to Teach the Next Generation about How to Manage and Protect Wealth

You’ve probably heard the adage, “Shirtsleeves to shirtsleeves in three generations.” In many cultures, there’s a traditional proverb pointing out that most wealthy families lose their wealth within three generations. To avoid becoming one of the statistics, wealthy families must work to instill their own financial values in their children and grandchildren.

MISTAKE #2: Allowing Portfolios to Grow Unchecked

An investment portfolio should never be treated as “set it and forget it.” Goals change, investments change and the market changes. To maximize growth, you need to review your holdings and rebalance your portfolio at least once a year. Regular portfolio checkups are vital for maintaining diversification, which is important for both protecting and growing your wealth.

MISTAKE #3: Not Understanding the Availability of Your Funds

You may spend many years in the accumulation phase of building your nest egg, but a time will come when you will need to use some of the funds you’ve worked to build, whether it’s for purchasing a vacation home, paying for your children’s education, or launching your retirement. When you’re ready to tap into your portfolio, it’s crucial to plan carefully for those distributions. If you don’t understand the tax issues and other regulatory issues surrounding the availability of your funds, you could end up losing a significant chunk of your money.

MISTAKE #4: Falling Into Traps of Investor Psychology

When the stock market drags, even seasoned investors can fall prey to knee-jerk reactions such as selling their holdings rather than waiting for an increase to return. Of course, every investor is chasing returns, but investing in the market is a long-term strategy. Selling when the market is low often results in deep losses over time.

Your personal financial plan is the best guide for determining when and whether to sell investments, rather than the current ups and downs of the market. To avoid falling into the trap of making a knee-jerk reaction when you see your portfolio’s value dropping, refrain from constantly watching the financial markets, social media and news media.

MISTAKE #5: Failing to Adequately Diversify Assets

All investments carry risk, and diversification is crucial for mitigating that risk. Rather than putting all your eggs in one—or a few—baskets, diversifying your investments means spreading them across many baskets.

When your portfolio is adequately diversified, you always have backup. For example, if the domestic stock market is suffering, your international investments may continue to grow. If technology companies are floundering, real estate may be thriving.

MISTAKE #6: Failing to Coordinate Financial Planning with Tax Planning and Estate Planning

Every time you make a move financially, your tax liability is affected. And if you’re planning to leave a legacy for your loved ones, every financial move you make could also potentially affect your estate. By neglecting to coordinate your financial plans with your tax and estate planning, you could potentially leave your fortune vulnerable to huge losses.

MISTAKE #7: Having Unclear Investment Goals

Saving for a rainy day is one thing but building a long-term wealth plan is quite another. And doing so effectively requires setting clear goals: You must understand what you want to accomplish in order to make it happen.

However, setting goals one time isn’t enough. As your life and priorities change, your goals and investing objectives are also likely to change. To do the best possible job building and protecting your wealth, you need to periodically revisit your goals and adjust them if necessary.

MISTAKE #8: Waiting to Plan Until the Future Looks Less Volatile

There will never be a time when we can predict the future with certainty. If you’re waiting to create a wealth plan when everything seems less volatile and more predictable, you may be waiting forever. In the meantime, you are likely missing out on the growth that you could be experiencing with a focused financial and wealth management plan.

Davie Kaplan can help you avoid these mistakes and more with practical solutions and strategies to anchor your growth and long-term success. Call us today for a complimentary consultation.

Categories: Financial Planning