7 Mistakes High Net Worth Investors Avoid

7 Mistakes High Net Worth Investors Avoid

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The wealthy, who are also known as High Net Worth Individuals (HNWI) have a net worth higher than $5 million and, Ultra High Net Worth Individuals (UHNWI) higher than $30 million. The net worth of these individuals consists of shares in private and public companies, real estate investments, personal investments, such as art, airplanes, cars.

Many people believe that the key to becoming wealthy lies in some secret investment strategy. However, this isn’t usually the case. Instead, HNWI’s and UHNWIs understand (1) the basics of having their money work for them and (2) know how to take calculated risks. They know which simple investing mistakes to avoid. Many of these mistakes are common knowledge, even among investors who are particularly not HNWI or UHNWI.

Here are 7 common investing mistakes HNWIs and UHNWIs avoid making.

Investing only in intangible assets

When people think of investing and investing strategies, stocks, bonds, mutual funds normally come to mind. It could be due to higher liquidity or a smaller price for entry. This doesn’t mean that such types of investments are always the best. Instead, HNWIs understand the value of investing in physical assets, and

allocate their money accordingly. Most of them invest in assets such as real estate, land, gold, art. However, cash flowing commercial real estate continues to be a very popular asset class in their portfolio to balance out the volatility of stocks. While it’s imperative to invest in physical assets, these often scare away smaller investors because of the lack of liquidity and a higher investment price point.

Investing 100% in public markets

HNWIs and UHNWIs understand that real wealth is generated in the private markets rather than the public markets. The wealthy may gain a lot of their initial wealth from private businesses, often through business ownership or as an investor in private equity. Additionally, they use private equity investments to generate high returns and add to their portfolio’s diversification.

Keeping up with the Joneses

Many smaller investors tend to always look at what their peers are doing and try to match or beat their investment strategies. In one’s journey to build personal wealth it is critical not to get caught up in such type of competition. The wealthy establish personal investment goals and long-term investment strategies before making investment decisions.

Not rebalancing an investment portfolio

Through consistent rebalancing, HNWI and UNHWIs can ensure their portfolios remain adequately diversified and proportionally allocated. Often investors do not keep up with rebalancing, which skews their portfolios too far one way or the other. For the wealthy, rebalancing their portfolio on a regular basis is a necessity. 

Not having a savings strategy in a financial plan

Investing and savings strategies are equally essential to becoming wealthy, but many people tend to undermine the importance of a savings strategy. The ultra

wealthy focus on increasing their cash inflows as well as reducing their cash outflows, thus increasing overall wealth. They know that living below their means will help them get to their desired level of wealth in a much shorter amount of time.

Not paying attention to tax planning

While the anxiety surrounding tax season may never quite go away, there are tax-efficient strategies wealthy investors employ to ease concerns and soothe stress levels when that time of year inevitably comes. Tax loss harvesting, tax deferral, accelerated depreciation are some of the strategies to consider. Please always seek the counsel of a tax professional as the final authority on your tax strategy.

Corelating professional success to personal finance success

If you are financially successful in your profession or business, it may seem like a forgone conclusion that you will also be proficient at managing your personal finances. Unfortunately, this couldn’t be further from the truth. For example, being an accomplished doctor doesn’t automatically translate into personal finance success. Most HNW and UHNW individuals create wealth through their profession or business and hire someone to help them navigate the world of investing. This saves them a lot of stress and money over the long run.

References: Knight Frank. “The Wealth Report”, Jonathan I. Shenkman “Forbes”

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