Insights + Resources

Investment Challenges of the Affluent Investor

Jan 22, 2025

Jigsaw Puzzle Unfinished
Affluent investors face unique challenges when putting together an investment strategy.

High net worth investors face investment challenges that some would consider unique to their financial status. The fundamental tenets of investing apply just as equally to them as any other investor, but these investors need 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 may ever spend, there can be a tendency toward overly conservative investment. This may result in lower long-term returns, which may shortchange the impact of bequests to charities or the wealth that will transfer to the next generation.

The Value of Collectibles

The affluent have a tendency to invest in their passions, and many collectibles have performed well over the years. One common mistake, however, is not keeping up-to-date appraisals, which may have adverse consequences with regard to estate liquidity and taxes. An investor should also remember that a variety of factors can significantly affect the value of collectibles by, including economic downturns or markets that have little or no liquidity. Therefore, there is no guarantee that collectibles will maintain their value (or effective purchasing power) in the future.

Concentrating Equity

Some senior executives accumulate large stock positions in the company that employs them. A general rule of thumb is that any position making up more than 10% of a portfolio should be reviewed for appropriateness. Not every concentrated position needs to be sold, however. Indeed, it may be possible for a client to continue to hold a sizable amount of one stock if their portfolio also has a solid foundation of well-diversified investments to help pursue their goals. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change and that shares could be worth more or less than their original cost when sold.

DIY Mentality

Some wealthy investors have achieve great career or business success due to their intelligence, initiative, and self-confidence. This very success often promotes the belief that building or managing successful enterprises is not dissimilar to managing great wealth. In fact, it can be quite different, requiring a whole different body of knowledge and experience. An investor might be surprised how the company they invest in actually makes money.

Too Many Advisors

Affluent investors often place their invested assets with multiple investment professionals, presuming this may lead to better performance. Many of the key needs of larger portfolios, such as risk and tax management, could suffer as a consequence. This may occur because an investment professional supervising only some of the assets would lack an overarching view into the larger picture of an individual’s entire portfolio. The independent actions by separate investment managers, all with the best of intentions, may actually encourage suboptimal outcomes.

With increasing wealth comes even more unique challenges, beyond those covered by this discussion. Consequently, we encourage affluent investors to seek professional guidance from a certified financial planner that may be best suited for their particular needs and circumstances.

For more insights and resources, be sure to sign up for our Weekly Market Commentary. Follow our YouTube channel where we regularly post our Epic Market Minute videos. Follow us on LinkedIn, or like us on Facebook. And as always, please don’t hesitate to reach out to a dedicated service professional at Epic Capital.

Tags: , , , , , , ,

More Insights

Feb 7, 2025

The new month brings two major market-moving stories to digest. First is the advances in artificial intelligence (AI) by Chinese startup DeepSeek. It has caused some investors to question America’s lead in the AI race and American Exceptionalism more broadly. To answer that question, it’s important to look at this idea holistically.  U.S. advantages in … Continue reading “Market Update – AI Advances and Tariff Tactics”

Feb 5, 2025

Some accounts have no designated beneficiary. Rarely, the same thing occurs with insurance policies. This is usually an oversight. In exceptional circumstances, it is a choice. Without beneficiaries what happens to these accounts and policies when the original owner dies?

Feb 3, 2025

What Is DeepSeek? The buzz around Chinese artificial intelligence (AI) startup DeepSeek began to stir over the weekend, prompting a “sell now ask questions later” attitude across tech shares on Monday. AI has been a major investment theme, but this time the headlines didn’t feature new chips or bold development plans. The AI chatbot utilized … Continue reading “Market Update – DeepSeek What Happened and What are Implications?”

Jan 31, 2025

You can prepare for the transition years in advance. In doing so, you may be better equipped to manage anything unexpected that may come your way.

Jan 29, 2025

Information vs. instinct. When it comes to investment choices, many people believe they have a “knack” for choosing good investments. But what exactly is that “knack” based on? The fact is, the choices we make with our assets can be strongly influenced by factors, many of them emotional, that we may not even be aware … Continue reading “Making Investment Choices”

Insights + Resources >