Some people mistakenly believe that those who have a high net worth have a successful investment strategy known only to them. While smart investing can indeed make a person rich, it is just one of several good money habits of individuals with high net worth. Below we discuss some common financial management mistakes people make that prevent them from fully reaching their monetary goals.
Only Investing in Intangible Assets
When you’re considering a new investment, do you only focus on stocks and bonds? You’re not alone if you do. Many investors gravitate towards stocks and bonds because their entry price is less than other investments and they offer more liquidity. However, you could be missing out on the value of physical assets by employing this strategy. You may want to consider diversifying your investment portfolio by also investing in some of these physical assets:
- Commercial real estate
- Private real estate
While it costs more upfront and the assets are less liquid, these types of investments often pay off in a big way over time. Another thing to consider is that they are not as prone to market swings as stocks and bonds.
Failing to Save While Investing
Investing is an ideal way to build wealth, but it’s not the only way. It’s important to make smart decisions when it comes to both investing and savings. The benefit of saving while also investing is that it allows you to reduce your outflow of cash while taking in a greater inflow of cash at the same time. This may force you to live below your means for several years as you strive towards meeting your goal of financial independence. The reward of your sacrifice is that you will get there much sooner than if you had focused on investing alone.
Ignoring Opportunities in Private Markets
Many wealthy people started their investments in public markets. However, they soon discovered the importance of investing in private markets as well. This includes acting as an angel investor for new business owners. One benefit of private investments not found through public investing is that organizations often use private equity investments to obtain the highest possible rate of return for investors. This helps private organizations to create a more diverse portfolio as well.
Competing with Peers
People who invest a lot of their money are naturally competitive already. This can work against them when they pay too much attention to what their peers are doing and attempt to out-invest or out-earn them. It’s important to put blinders on regarding your peers and instead create short-term and long-term investments to help you reach your personal goals in the amount of time you would like to achieve them. Your peers have different goals and what makes sense for their investment strategy may not work for you at all.