Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Wednesday, May 21, 2014

7 Wealth-Draining Behaviors to Avoid

Wealth

Many people may not realize that their own behavior can lead to significant wealth losses.  Although you cannot control the markets, you can maximize your chances of preserving wealth.  Here are seven behaviors to avoid:

  1. Chasing Top Performing Money Managers and Markets. If you want to devise a strategy to underperform the market, switch from top performer to top performer and constantly incur the same transaction and tax costs.  Contemplate investment options such as index funds that consistently capture market returns inexpensively. 
  2. Putting More Money in the Asset that Made You Wealthy. Thinking that you will stay wealthy from a concentrated investment may lead you down the wrong path.  Concentrated investments do not make you wealthy.  Try to diversify away from the asset that made you your money.
  3. Overspending. No matter how much money you have, it is always possible to spend it faster than it is sustainable.  To ensure your spending does not cut into your wealth, set a sustainable withdrawal rate and stick to it. 
  4. Only Focusing on Pre-Tax Investment Returns. Investment marketers sell pre-tax returns, however, when you calculate how much you actually keep after you pay taxes, it is usually 50% or less of the marketed number. 
  5. Failing to Manage Risks. Without adequate estate planning strategies in place, the money you can lose outside your investment portfolio can thwart returns of any investment.  Have a comprehensive wealth advisor whose job it is to stay on top of these issues.
  6. Becoming Vulnerable to Theft. In order to avoid being stolen from by people you know and people you do not, there are several things you can do: stay clear of hotel business centers and airports, as these tend to be hacking spots; upgrade to “two-factor authentication” to make the hacker’s job harder; and make sure your wealth advisor requires verbal confirmations for all transfers out of your accounts. 
  7. Enabling Family Members. Seventy percent of wealthy families fail to transition their wealth to the next generation because there is no “magical estate planning technique that will produce an heir who is productive, engaged and self-motivated.”

See Covie Edwards-Pitt, How To Destroy Your Wealth In 7 Easy Steps, Forbes, May 20, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

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