Comprehensive Financial Solutions, Inc.

440-343-4223

Investment Read Time: 3 min

Investment Challenges of the Affluent Investor

High net worth investors face investment challenges that some would consider unique to their financial status. The fundamental tenets of investing apply equally to them as with any other investor, but the affluent investor needs to be mindful of issues that typically arise only from substantial wealth.

Let’s examine a few of these.

Being Too Conservative - When an individual has more assets than they think they’ll ever spend, there can be a tendency toward conservative investment. This may result in lower long-term returns that may shortchange the impact of bequests to charities or the wealth that will transfer to the next generation.

Collectibles - The affluent have a tendency to invest in their passions, and many collectibles have performed well over the years. However, one common mistake is not keeping up-to-date appraisals on record, which may have adverse consequences with regard to estate liquidity and taxes.1

Concentrated Equity - Some senior executives accumulate large stock positions in the company that employs them.2 This creates a unique risk and potentially can be managed in several ways.

DIY Mentality - Some wealthy investors have achieved a high level of success in their careers, in large measure due to their intelligence, hard work, and self-confidence. This very success often carries over to the belief that building or managing successful enterprises is not dissimilar to managing great wealth. But it can be quite different, requiring a whole different body of knowledge and experience.

Too Many Professionals - Affluent investors often place their investment assets with multiple professionals, thinking that better results will arise from that. However, many of the key needs for larger portfolios, such as risk management and tax efficiency, will suffer since there is no overarching view into the larger picture of an individual’s entire portfolio. The independent actions by separate professionals, all with the best of intentions, may actually work to suboptimal outcomes.

With increasing wealth come even more unique challenges beyond those covered by this discussion. Consequently, affluent investors are encouraged to seek professional guidance that may be best suited for their particular needs and circumstances.

1. The value of collectibles can be significantly affected by a variety of factors, including economic downturns or markets that have little or no liquidity. There is no guarantee that collectibles will maintain their value or purchasing power in the future.
2. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Protection Against Uninsured Drivers

Protection Against Uninsured Drivers

You’re hit by an uninsured driver. Now what? Are you protected against financial losses?

Risk Perspective

Risk Perspective

Is it possible to avoid loss? Not entirely, but you can attempt to manage risk.

The Anatomy of an Index

The Anatomy of an Index

The S&P 500 represents a large portion of the value of the U.S. equity market, it may be worth understanding.

 

Have A Question About This Topic?







Thank you! Oops!

Immediate vs. Deferred Annuities

Looking forward to retirement? It's critical to understand the difference between immediate and deferred annuities.

When to Self-Insure

Choosing to bear the financial burden of an adverse event is called self-insuring. Do you know what that entails?

The 12 Steps to Living Confidently: Retire With Confidence

There are good ways to retire and bad ways to retire. Retire the right way by better understanding Social Security.

View all articles

Federal Income Tax

Use this calculator to estimate your income tax liability along with average and marginal tax rates.

What Is My Risk Tolerance?

This questionnaire will help determine your tolerance for investment risk.

Potential Income from an IRA

Estimate your monthly and annual income from various IRA types.

View all calculators

Long-Term-Care Protection Strategies

The chances of needing long-term care, its cost, and strategies for covering that cost.

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

View all presentations

Encore Careers: Push Your Boundaries

Ready for retirement? Find out why many are considering encore careers and push your boundaries into something more, here.

The Other Sure Thing

Though we don’t like to think about it, all of us will make an exit sometime. Are you prepared?

Video: The Independence of Financial and Emotional

Greater financial and emotional confidence brings greater independence. Isn’t that what it’s all about?

View all videos