Jul 25, 2024  | Tags: wealth, risk

Our insights

Money is hard to make and the abundance of wealth risks makes it much easier to lose.

The world is littered with stories of high net worth individuals who ‘lost it all’.

Some fall victim to failed businesses, bad investments, scammers or wealth predators.

Others simply make mistakes.

High net worth individuals need to be mindful of these traps and work fiercely to protect their financial security and legacy.

Here are some of the most common ways to ‘lose it all’.  

Market volatility

It’s been something of a bumpy ride on the markets since the pandemic, littered with surges of growth and sharp corrections.

High net worth individuals often have much of their assets tied up in equities, real estate and other investments highly sensitive to market fluctuations.

Ensuring your portfolio is well diversified is the key to protecting yourself from market volatility.

A professional financial advisor can regularly review your investments to ensure they are well balanced across multiple asset classes and robust against an ever changing market.

Don’t react to short-term market volatility.

Regulatory and economic changes

Governments are constantly changing tax laws, superannuation rules and financial regulations that impact wealth accumulation.

The ATO loves cracking down on high net worth individuals who they think are exploiting tax loopholes.

At the same time, interest rates fluctuate, impacting investment returns and borrowing costs.

That’s why it pays to work closely with your accountant and financial advisor to stay abreast of any economic movement or changes to tax law and adjust your investments accordingly.

Business risks

A failed business is one of the biggest wealth risks.

Business liabilities and legal actions leave naive high worth individuals exposed to losing everything.

Always establish protective legal structures such as trusts and corporations to safeguard your assets from business liabilities.

Tax risks

High net worth individuals invariably have multiple investments and income streams, often with international exposure, creating highly complex tax situations. 

It leaves these individuals extremely vulnerable to a costly and time consuming tax audit.

That’s why working with an experienced tax and accounting professional is imperative, both in terms of proactive planning and if audited, to minimise liabilities and avoid nasty and expensive surprises.

Geopolitical risks

International investments are susceptible to their markets and countries of origin.

They are subject to local regulatory changes, political instability, trade tensions and geopolitical conflicts.

Always keep a close eye on offshore investments and mitigate risks by diversifying satisfactorily.

Cybersecurity and fraud risks

Cybercriminals and fraud are two of the biggest wealth risks for high net worth individuals.

They are very popular targets for cyberattacks, identity theft and sophisticated and elaborate fraud schemes.

Always invest in cybersecurity measures to protect yourself from attacks and review and update them regularly.

Approach any new investment opportunities with scepticism, engaging financial advisors to do due diligence to avoid falling victim to fraudsters. 

Inflation and interest rate risks

We are living in a time of high inflation and rising interest rates.

Inflation erodes the real value of wealth over time while higher interest rates can increase the cost of servicing debt so it is important to manage it carefully.

When choosing investments, select ones that perform best in times of high inflation such as real estate and commodities.

Health and longevity risks

Rising healthcare costs and the need for long-term care are serious wealth risks for older individuals.

They can seriously erode someone’s net worth in the event of illness.

Hence it is important to secure health, disability and long-term care insurance.

Take a cautious but prudent approach with your retirement strategy, understanding the possibility of living well into your 90s, while also considering the size of the legacy you wish to leave to your heirs.

Family risks

This is a big one.

It is no surprise to most that divorce is extremely costly, and many high net worth individuals lose a huge chunk of their wealth in property settlements. 

Then there’s estate planning, where much of an estate can be lost in taxes and legal challenges if it is not meticulously prepared.

These challenges can become even more complex in the all too common instances of divorce or blended families.

It makes it absolutely critical to regularly review and potentially update your estate plan, revising wills, trusts and powers of attorney.

Speak openly with your family about your plans so they know what to expect, limiting the chances of conflict down the track.

Get advice today

High net worth individuals have a lot to lose.

That’s why it is important to take the greatest of care with your assets to ensure they last your lifetime and if desired, a lasting legacy to your heirs.

Financial mistakes cost small investors a small amount of money but the damage can be much greater for big investors.

That’s why working with an experienced financial planner makes great sense.

Calder Wealth Management boasts an accomplished team of financial planners and advisors who have experience working with the significant assets of high net worth individuals.

Even if you are supremely confident in your wealth strategy and investments, it pays to have a fresh set of eyes regularly review your portfolio.

At Calder, we pride ourselves on leading our clients into the future with structure, financial stability, confidence and security. 

Contact us today.

Written by Aaron Doig

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.