During the course of my career, I have talked to many people who are professionally (hence financially) successful who think that because they knew how to succeed in business that they know how to handle their own money, how to invest, or, at least, who is a good advisor.
The problem I see again and again is people don’t know what they don’t know, even rich, successful ones.
You only need to look as far as Hollywood to see how exceptionally successful people have handled their money unsuccessfully. News stories abound where A-list celebrities with their multi-million dollar earnings go into bankruptcy – they overspend, they overestimated their income potential, they don’t pay their taxes, they hire misguided or money-hungry money managers. From my vantage point, becoming wealthy through professional success does not equate with skill in handing accumulated wealth. Career know-how is not investment know-how.
Wealthy people also have a tendency to want more wealth, and they are not deterred by investments that perform better than the market. They are too easily sold into schemes, because they don’t know how to see through them. So, too, are some financial advisors. You only have to look back a few years at the Bernie Madoff scandal, and there were plenty of schemes before Madoff, large and small. The problem, at least in part here, is that wealthy people sometimes earn large amounts of money quickly, and it makes sense to them that the market does the same. It doesn’t. Other problems are greed, a sense of deserving more than others, some sort of exclusiveness, and in general, impatience. Investors also want to get into the next hot thing and forget that’s an easy way to get burned. Those companies go down more often than they take off but not before taking off with investors’ money.
Another problem that I’ve encountered is that many people don’t have a good handle on what it means to be a millionaire these days. A million dollars doesn’t go as far as it used to. Retirement lasts longer and can be expensive if you have to go into a nursing home or require in-home care. Preservation and modest growth are key when you’re in this position. Yet, I’ve seen people who don’t think twice about buying that expensive car or villa when that money should be in the market working for their retirement. That’s when you’re really going to need security, because it’s pretty hard to hold down a job when you’re elderly. I’m not saying they should drive a beat up car or live in a dump, but they need a voice of reason guiding them to make better decisions. It’s a lot easier to make money during your working years when you’re young and vibrant than replacing lost or spent money during your old age or just living without after working hard for decades.
Another problem I see too often is wealthy people sometimes don’t know when to retire. They work 24/7, or so it seems. They wouldn’t know what to do with themselves if they didn’t go to work, and they’d worry they wouldn’t have an income off of which to live. Well, the latter may be true for some, because wealthy people tend to spend rather than invest. Perhaps it’s because they don’t know how to invest, after all.
My advice? Teach your clients to hold onto their wealth. Teach them to grow their wealth wisely. Help them create a plan and a destination. Encourage them to seek guidance. That’s what you’re there for.
Stephen R. Swensen
CEO and Founder of Bucket Bliss