Personal Capital, a digital wealth advisor with over 1.5 million users of its free financial tools, released its latest Affluent Investor report. Among other things, it highlights the biggest financial concerns of affluent investors.
The biggest surprise from one of its surveys is that folks with more than $500,000 in investable assets are most worried about a financially secure retirement. Think about that for a minute. With the median retirement savings for 56 – 61 year olds in America at only ~$20,000, Americans with 25X that amount cite financial security as their top worry!
With $500,000+ in investable assets alone, one can presume that most survey respondents have net worths in excess of $1,000,000. After all, about ~85% of the typical American’s net worth is tied up in their primary residence. Check out the survey results.
The Biggest Financial Concerns Of Affluent Investors
I bet most people in the world would consider having $500,000 in investable assets plus a home to be a financial life well done. Therefore, we can conclude that affluent investors have to be one of the most paranoid demographics around, especially since 38% said they are also worried about losing their wealth.
It is fascinating the biggest financial concern from the mass affluent is that they will run out of money.
Why Are Affluent Investors So Paranoid?
Most of the people who’ve been able to amass over $500,000 in investable assets are probably older than 37, the median age in America. Therefore, one can postulate that these investors have lived through the housing crisis and maybe even the 2000 dotcom bubble with a significant amount of assets.
They’ve seen their investments get slashed by a third within 12 months a couple of times. They know dozens of people who were let go from a job they needed and remained jobless or underemployed for years.
When you amass $500,000+ in investable assets, you naturally start getting paranoid about losing all your money that took years, if not decades to accumulate. That paranoia only tends to get worse the more money you have in risk assets. After all, it takes a 100% return to get back to even if you lose 50% of your money.
Why My Concerns Grew
Once I accumulated over $1,000,000 in investable assets, it no longer seemed prudent to allocate all my money towards stocks. Instead, I began piling most of my money into real estate to diversify away from my 401k, my company stock, and my career in equities. Little did I truly realize my “diversification,” starting in 2003, was actually a 5X leverage concentrated bet on San Francisco real estate.
The irony with having very little to invest is that you simply don’t have much financial worry. Think back to how happy you were in high school, college, or the first few years after work. All you cared about was having a good time and maybe saving a little money on the side for a vacation or a new ride. Is it any wonder why so many of us were happier before the age of 35?
It was only until after I built some passive income and started this site did my investing paranoia begin to wane. Writing about your fears is a lot like speaking to a therapist who helps put things into perspective.
My Top Three Financial Concerns
Here are my biggest financial concerns.
1) Poor investment returns from my rental home proceeds.
Although it’s been a relief to no longer manage a rental property that comes with a $23,000 a year annual tax bill, I know I’ll be disappointed with myself in 20 years when I revisit how cheap I sold it for. The only solution to minimizing disappointment is earning at least a 5% annual return on my proceeds that cause minimal worry.
My hope is that real estate crowdfunding, the stock market, and the municipal bond market will provide such an outcome, but I’ll never know for sure. So far, my investments in all three asset classes have done well since I sold my rental property in 2017. However, there was a big scare in March 2020.
2) A large decline in my online business.
My online business provides fantastic supplemental income to my current passive income investments. I’m constantly reinvesting more than 50% of my online income to create more passive income. But one day it might go way down or go away.
But as I look into the future, I’m thinking of taking things down a notch to spend more time with my son and daughter. I’m too tired post over one year of lockdowns since the pandemic began. It’s time to enjoy life more!
The creation of the FS iTunes channel is one way for me to buy time during the weeks I no longer want to write. It’s potentially a new revenue generator as I’ve already been offered two sponsorship proposals.
3) The financial well-being of my in-laws.
My parents are thankfully financially secure due to their long careers in the US Foreign Service. They lead frugal lives with no debt, minimal expenses, have healthcare, and pensions for life.
My in-laws, however, are not as lucky. They are surviving OK, but I want them to be thriving at their age. I want to find a way to financially help them without offending their honor. This is a tricky subject that deserves a dedicated post.
4) Living long enough to see my children grown up.
Perhaps my biggest concern isn’t a financial one. Given we had children late, we won’t be around as long as we could have been in their lives. Therefore, the goal is to get in ideal shape and live as long as possible. I’d like to at least see my parents grow up and find someone who loves them.
Try Not To Let Wealth Get In The Way Of Happiness
The amount of financial worry six figure income earners and high net worth individuals have is quite a paradox. But paranoia helps investors accumulate more capital in their lifetimes than those who couldn’t give two poops about financial freedom. However, investing FOMO never allows folks to ever be satisfied with how much they have.
The key to being financially happy when you’re already doing well is to compare your current self to your past self and not to other people. If you can focus on your own progress, dare I say your happiness meter might jump up a point or two!
Recommendation To Build Wealth
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Diversify Into Real Estate
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. The -32% decline in March 2020 was the latest example. However, real estate held steady and appreciated in value then.
Diversification and owning a real asset helps minimize financial concerns. I’d much rather invest in a stable asset that provides shelter and income than a security that could lose half its value overnight.
Take a look at my two favorite real estate crowdfunding platforms that are free to sign up and explore:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.