Many column inches and book pages have been dedicated to the process of becoming rich.
By definition, only a small percentage of the population can consider themselves as rich. This creates a large and eternal market of people who aren’t in this elite club and want this to change.
A book or course is typically quite inexpensive and therefore feels like an easy sell to a motivated (or desperate) individual.
Hence why the act of becoming rich is being endlessly taught by so-called gurus and others, keen to chase a quick buck.
Less public attention is given to the art of staying rich once wealth has been built up. Unlike achieving success, preserving or maintaining wealth isn’t a catchy concept and won’t sell many books.
It’s critical nevertheless, particularly when you consider that industry insiders suggest that between 70% – 90% of family wealth is squandered before the third generation has an opportunity to pass it on.
That’s a shocking statistic that feels counterintuitive because if left in a relatively sensible place, money will typically grow and grow over time.
You’ve heard the phrase that the rich get richer, well it turns out that this is only an anecdotal comment and doesn’t account for the real experiences of families that strike it lucky.
In this article, we’ll look at a few methods employed by those who do successfully hang onto and grow their wealth.
This should not be considered financial advice.
Top 3 Facts To Keep In Mind To Stay Rich
- Employ professional advisors and listen to them
- Diversify your portfolio
- Look past your own lifetime
1. Employ professional advisors and listen to them
Wealth preservation is the job tasked to wealth managers. ‘Wealth management is a generic term but it could apply to private bankers, financial advisers, or even fund managers.
If you are already rich, it would be advisable to hire a professional and independent adviser who could design and manage your investment portfolio with the limited input required from you.
The less input you have, the better.
Data from JP Morgan shared very recently indicated that retail investors saw only a fraction of the total gains of the stock market in the huge bull over the last twenty years. While the stock market has enjoyed annualized returns (in the US) approaching 10% per year, the typical investor has only seen 2.9% of it.
How is this possible? Why would individuals experience such different outcomes to the broader market that they are participating in? The answer is timing. Despite their best efforts, retail investors tend to buy high (when confidence is high and the hype is in the air) and sell low (during periods of panic).
You can avoid making the same mistake by delegating your investment decisions to someone who is removed from the emotional aspect and can follow a rigorous investment approach.
2. Diversify your portfolio
When you visualize successful generational wealth, you may be inclined to think about the family that founded Walmart, which still remains to this day one of the richest families in America.
Such families have retained much control over their company by retaining large holdings of shares. This means that they are not well diversified.
It may be tempting to follow this apparently lucrative path, but you would be falling victim to survivorship bias – you’re only paying attention to the successive survivors of this strategy.
Imagine if the company was Blockbuster in the US or BHS or Woolworths in the UK. Businesses don’t last forever, and therefore staking your entire fortune on the continued success of a single business is gambling with your chips.
Instead, you can preserve wealth by diversifying across a number of businesses, sectors, and countries so that no individual event could shatter your portfolio value.
3. Look past your own lifetime
A mindset adopted by many wealth managers who look after wealth as it passes through successive generations is to not focus on individual lifetimes. Money itself will outlive any single family member, therefore it’s easier to think of it as sitting on an infinite timeline.
When designing the portfolio, the manager doesn’t need to suddenly change course because someone has retired, or because they are approaching their final years.
Ordinary investors who need to ring every penny of income out of their savings to fund their retirement of course need to reshuffle and de-risk their portfolio for peace of mind.
In contrast, if you’re already rich, you can actually afford to take consistently higher risks with your money over every stage of your life, allowing for consistently higher expected returns all the way through the years.