Millionaires pride themselves on their financial knowledge and investment acumen, but they are not immune to money mistakes that can be teachable moments for all investors.
A survey of nearly 900 Millionaire investors conducted by DeVere Group, a global financial consulting firm, identified five top investing mistakes made by their high net worth clients:
Investing without a financial plan
Not regularly viewing their portfolio
Focusing on past returns
Failing to adequately diversify a portfolio
A financial plan is the foundation for financial peace of mind. The more comprehensive the financial plan, the more confident individuals are that they will be able to achieve their financial goals or sustain hits to their savings from financial emergencies.
A 2013 report sponsored by the Consumer Federation of America and Certified Financial Planner Board of Standards found that only one-in-five household decision makers are comprehensive planners. Four-in-ten (38 percent) were identified as basic planners, while 33 were identified as limited planners. Ten percent reported doing virtually no financial planning.
Comprehensive planners, the report identified, have a financial plan that covers basics such as the household budget but also such things as retirement saving, insurance, and an emergency fund. Basic planners have a plan for one or more specific savings goals. The limited planners either have a household budget or plan to address at least one individual savings goal, such as saving for retirement.
Nearly half of Millionaire investors surveyed by Spectrem’s Millionaire Corner have received advice about a written financial plan from their primary advisor.
Failure to review a financial plan runs the risk of failing to adjust to changes in the economy, tax laws, or your own circumstances, such as starting a family, job loss, or health status. Just over half (53 percent)of Millionaires surveyed by Millionaire Corner report their financial advisor reviews their plan with them at least semi-annually, while almost one-third (32 percent) review their plan with their advisor annually.
Emotional investing, too, can be detrimental to one’s financial health. A 2013 Millionaire Corner survey of high net worth investors with a net worth of at least $5 million found that that nearly three-in-ten (27 percent) blamed a financial mistake out of emotional investing based on fear or greed. High net worth investors were also most likely to blame their financial mistake on:
Economic events beyond my control (29 percent)
Holding on to losing investments (24 percent)
Advice from a broker (24 percent)
Advice from a friend (20 percent)
Risk is at once one of the top five factors to which Millionaires attribute their wealth creation, according to Millionaire Corner research, but also the leading consideration when devising investment strategies. Diversification, having a mix of investment vehicles, including stocks, bonds, real estate, commodities, and collectibles, is considered to be the best strategy to manage risk.
There are other financial mistakes that Millionaires cop to, according to Millionaire Corner research:
Not saving enough for retirement
Spending too much on material goods
Putting too much money into a house
Not spending money to enjoy life more when I was young
Three-fourths of Millionaire investors work with a financial advisor in some capacity, whether it be for a specific purpose such as retirement planning (32 percent), regular consultation (29 percent) or to make all their investment decisions (13 percent). More than seven-in-ten say that the primary benefit of working with an advisor is the gain of investment knowledge. More than six-in-ten credit working with a financial advisor with affording them more investment choices and improving their returns.
Financial mistakes will happen, even to Millionaires (and especially to feckless ones), but learning from those mistakes and adjusting one’s investment strategies and behaviors will go a long way toward minimizing them.
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.