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High Net Worth Investors Reflect on Financial Mistakes

High net worth investors are more likely than their less wealthy counterparts to cop to making a big financial mistake.

| BY Donald Liebenson

High Net Worth investors pride themselves on their financial knowledge and investment acumen. Mistakes? They’ve made a few, but they are more likely than their less wealthy counterparts to admit them, according to Spectrem’s Millionaire Corner research.

Two-thirds of high net worth investors with a net worth of at least $5 million admit to making a big financial mistake. A majority of Millionaires with a net worth of up to $4.9 million, too, are more likely to own up to a big financial mistake (56 percent). In comparison, half of those with up to $500,000 will cop to making a big financial error.

Across all wealth levels, a “big financial mistake” was most likely to be defined as more than $20,000, and while high net worth investors those with at least $5 million net worth are most likely to say they’ve lost this much due to a mistake (73 percent vs. 54 percent of Affluent investors overall), a majority of those with less wealth also say they’ve lost this much, including almost half (47 percent) of those with less than $100,000).

Smart investing ranks just behind hard work and education as the factors high net worth investors most credit their financial success. In reflecting on their financial mistakes, the highest percentage of those with at least $5 million is likely to blame economic events beyond their control. A near-equal percentage cop to emotional investing based on either fear or greed. Nearly one-fourth (24 percent) admit to holding on to losing investments.

Friends and brokers get off easy. Only one-fourth of the wealthiest high net worth investors surveyed blamed their financial mistake on advice from a broker, while just 20 percent threw their friend under the bus. Other sources blamed include:

·         Following the crowd (16 percent)

·         Acting on “gut instinct” without doing research (13 percent)

·         Bad luck (11 percent)

Primary financial advisors emerge virtually unscathed. Less than 10 percent of the wealthiest respondents blamed him or her for advice that led to a costly financial mistake. Just one-third of high net worth investors (35 percent) credit their financial advisor for their financial success, an indication of the confidence they have in their financial knowledge. Four-in-ten high net worth investors with a net worth between $5 million and $24.9 million consider themselves very knowledgeable about financial products, compared with 22 percent of Millionaires.

Regarding advisor usage, 55 percent report making all of their own financial decisions. Of these, 28 percent do consult with an advisor first for a specific purpose such as asset allocation or saving for retirement. Additionally, 27 percent do consult regularly with an advisor but make most of their own financial decisions, while 17 percent are completely dependent on their advisor for financial decisions.

In hindsight, the highest percentage of the wealthiest investors surveyed said they might have avoided making their financial mistake had they conducted more industry and market trend research. One fourth (26 percent) do wish they had consulted with a financial professional before buying or selling their investments.

Other do-over regrets include: 

·         Not diversifying investments (17 percent)

·         Not cutting losses (14 percent)

·         Not reading company reports before investing (14 percent)

Among high net worth respondents who identify themselves as aggressive investors, the highest percentage blame holding on to losing investments as the primary factor in their making a big financial mistake. They were less likely than more moderate high net worth investors to blame economic events beyond their control, and te most likely to blame "bad luck."

Almost one-fourth (23 percent) cite their own emotional investing, while 20 percent blame acting on their "gut instinct."

About the Author

Donald Liebenson

Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.  

A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.