Investment Challenges of the Affluent Investor

Being Too Conservative — When an individual has more assets than they think they’ll ever spend, there can be a tendency toward conservative investment. This conservatism may result in lower long-term returns that may short change the impact of bequests to charities or the wealth that will transfer to the next generation.

Collectibles — The affluent have a tendency to invest in their passions, and many collectibles have performed well over the years. However, one common mistake is not keeping up-to-date appraisals on record, which may have adverse consequences with regard to estate liquidity and taxes.¹

Concentrated Equity — Some senior executives accumulate large stock positions in the company that employs them.² This creates a unique risk, and potentially can be managed in several ways.

DIY Mentality — Almost by definition, some wealthy investors have achieved a high level of success in their careers in large measure due to their intelligence, hard work and self-confidence. This very success often carries over to the belief that building or managing successful enterprises is not dissimilar to managing great wealth. In fact, it can be quite different, requiring a wholly different body of knowledge and experience.

Too Many Advisors — Affluent investors often place their investment assets with multiple advisors thinking that better results will arise from that. However, many of the key needs for larger portfolios such as risk management and tax efficiency will suffer since there is no single view into the larger picture of an individual’s entire portfolio. The independent actions by separate advisors, all with the best of intentions, may actually work to sub-optimal outcomes.

With increasing wealth come more unique challenges beyond those covered by this discussion. Consequently, affluent investors are encouraged to seek professional guidance that may be best suited for their particular needs and circumstances.

1. The value of collectables can be significantly affected by a variety of factors, including economic downturns or markets that have little or no liquidity. There is no guarantee that collectables will maintain its value or purchasing power in the future.
2. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.