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Practical Planning Tip: 7 Mistakes Affluent Investors Make - Mistake # 2

May 16, 2024

Today, I’d like to continue our discussion on mistakes affluent investors make.

And today’s mistake is that Concentrated investments can make you rich, but probablywon’t keep you rich: Much of the wealth of many HNW individuals’ is locked up in their business. A concentrated capital investment and the simultaneous dedication of reinvesting cash flow back into the company is how many affluent folks accumulated their fortune. However, the approach that made them wealthy is not the optimal approach to keep them wealthy.

A high-profile example of this concept is Patricia Kluge, the ex-wife of late billionaire media mogul, John Kluge. While her ex-husband created his fortune with concentrated investments in media companies, Patricia invested most of her divorce settlement money into her own vineyard. When the housing market crashed, she lost everything and had to sell her jewelry at auction just to make ends meet. Unfortunately, there is no shortage of similar stories of wealthy people who blew their fortune on a few bad investments.

In order to maintain one’s affluence, one should focus on preservation of capital. That is accomplished through prudent diversification, a strategy that most people don’t get excited about. It is, admittedly, quite boring and sometimes frustrating since there will always be an underperforming asset within your portfolio and overall returns will lag at least some areas of the market. That being said, this strategy also helps minimize the likelihood that your portfolio will implode. In retirement, the name of the game is to live off the fruit of your labor. Searching for the next hot investment idea to triple the value of your assets can lead to financial ruin.

Tomorrow I will discuss the third mistake many affluent investors make.

You can WATCH the full video here.