Every so often we hear “What did I do to get me here?” or “What did I do wrong?” Below are the top ten reasons that otherwise bright people fail to meet their wealth management goals.

  1. Vague or non-existent financial goals provide no sense of purpose in making other financial decisions. If there is no other larger purpose for the use of financial resources there is no reason not to expend the resources on daily living.
  2. Underestimating longer term needs is common and a true sense of what is realistic needs to be evaluated carefully. An example is individuals who expect that they can live on materially less than they are living on now. They often point to parents who live through the depression who have very modest lifestyle needs as their example. If an individual feels they can live on less why are they not doing it today and investing the difference? Do they really think that a material reduction in lifestyle will be easier later?
  3. Risk management holes in their planning. No one likes to spend a lot of time on insurance issues but having risk exposures not covered can leave your net worth seriously exposed. Auto, Home Owners, Life, Disability, and Liability coverages are vital to assuring that your big picture dreams are realized. An unexpected event and the unexpected outflow of cash it will likely require will expose inadequate coverage and be a significant setback to your longer term plans.
  4. Excessive Investment Risk is often the cause of poor investment returns. The “sure deal” that “can’t lose” does in fact often loses money. Lack of diversification can lead to huge positive returns or to the ultimate loss of capital. My experience indicates this is a low probability way to accumulate or protect significant wealth.
  5. Too little risk is the opposite of number four (obviously!). When all an individual’s resources are invested in instruments that are considered highly secure, that sacrifices returns that can offset inflation over time. More information on this can be found in our white papers section.
  6. Overconfidence in good times continuing can lead to several negative outcomes. I’m sure the employees of Enron felt their jobs and investments in Enron stock were a sure thing. Clearly being prepared for change in circumstances whether it be business conditions, employment or other events is prudent.
  7. Tax ignorance and making decisions without consideration of potential tax considerations can easily lead to sending more money to Uncle Sam than to your wealth management strategy. One should consider the consequences of tax moves. Our Tax Efficiency paper may be of some interest.
  8. Tax obsessive refers to the individual who believes the prime directive is to avoid taxes at any cost. Too often the tax obsessive will achieve sub optimal after tax investment returns in order to not pay tax. The goal is to have more after tax spendable money not to pay the lowest tax bill.
  9. Consumptionitis is a common problem. When income goes up often lifestyle follows without regard to longer term implications on the need to increase savings and investments. Referring back to your long term goals and overall money values will provide important guidance when the consumption fever sets in.
  10. My ship will come in is reflective of an overconfidence in the belief something good will happen to “solve the problem”. Whether it be an expected inheritance or the imagined value of a particular asset over-reliance on an event out of your control is dangerous.

Developing a wealth management strategy to build and/or protect your net worth is best accomplished by considering all of the tools available to develop a plan that has a high probability of success.

The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.