For a few years, I worked for a high net worth investment planning firm. To be considered a client, you needed to have at least $2 million in investable assets. What does this mean? It means you have to be able invest $2 million with us, in some combination of retirement and non-retirement accounts. Don’t get this confused with net worth, as net worth has nothing to do with investable assets.
Anyways, in total, we had over $500 million under management. I mainly worked on building the plans, so I got to know the intimate details of our clients – things that most other people would never know about these people.
So what did I learn from dealing with the rich? I list the most interesting insights below. Some things may seem obvious to you while others will surprise you. Hopefully, you will learn something and be able to apply it to your financial life.
Priceless Lessons Learned While Working With The Rich
Financial Lessons Learned
Most of our clients were self-made millionaires. Very few inherited their money. The majority were doctors, a good many owned their own business, and a few were executives. In fact, one worked for Kellogg’s, the cereal company. Every holiday season he would bring us boxes of cereal! Another worked at a pretzel factory and we would get pretzels from him. Finally, another worked at Clif Bar and we got a ton of those too.
Interestingly, the ones that were clients because they inherited the money were going broke because they couldn’t control their spending. It just goes to show you that you need to understand how to handle money. If you are horrible with money, regardless if you inherit it or you win the lottery, odds are you are going broke sooner rather than later.
The doctors had a ton of debt and very little non-retirement savings. In fact, most of them had a good-sized retirement account and nothing saved outside of it. They also mainly had huge mortgages (close to $1 million in debt!) and drove fancy new cars.
Those that owned their own businesses would never be picked out of a line up as being a millionaire. One client would wear shorts and a Hawaiian shirt all the time – even in the winter. He was worth over $10 million.
Many lacked proper insurance coverage. I guess this is because insurance is boring and most overlook it. But having adequate insurance coverage is huge if you plan on keeping your wealth. If you are only worth $50,000 you don’t need $4 million in insurance coverage, but if you are worth $4 million, you better have more than $50,000 in insurance coverage!
Learning to keep your spending in check is extremely important. We had one client who spent $40,000 a month. But she was worth over $30 million so she was OK with spending that amount. Others were not so fortunate. We had one client that sold a business and the deal paid him $700,000 a year for the next 7 years. His final installment was a few years before I started at the firm. By the time I left, he was broke.
Those that followed our philosophy of buy and hold investing did well. In fact, most earned back the money lost from the market crash in 2008 by mid-2011. We did have one client though that didn’t do so well.
He was a trader and would make all kinds of trades based on his “hunches” and “fears”. His portfolio was always down while his wife’s, who followed our advice, was usually doing well. He questioned why her returns are always so much better than his. He didn’t like the answer.
Non-Financial Lessons Learned
While the above lessons were mainly financial, I did learn a lot of non-financial things too. The biggest was that to be successful, I was probably going to fail. I need to learn to get over failure and get back up on the horse as they say. A good many of our clients told stories of their failures but added in how it eventually led to their success.
I also learned that experiences are more important than things. Our older clients would talk at length about family trips and vacations they would take with their kids and grandkids every year. They never talked about the new flat screen TV or the cool memory foam bed they just bought. It was all about experiences that made them the happiest.
Summing It All Up
To recap, here is a bullet list of the things I learned:
- You can be successful and wealthy doing anything. You just have to work hard and put in the time.
- You may become right overnight through an inheritance or by winning the lottery, but if you have crappy money habits, you will be right back in the same financial spot as before – or even worse.
- The typical signs of wealth – cars, boats, houses, etc. – are the signs of the uber wealthy. The true rich cannot be picked from a line up. They live frugally, save and invest their money.
- A long-term investing strategy is one that will make you a successful investor. If you try to time or beat the market, you are going to fall on your face.
- Accept failure. If you are going to be successful at anything in life, you are going to fail a lot. The sooner you can accept it and learn from it, the better off you will be.
- When spending money, spend it on experiences, not things. The memories are priceless.
Overall, I loved the job. Just about all of our clients were down to earth and great to spend time with. I learned a lot just by being around them and learning how they became wealthy. The biggest lesson though was that being wealthy wasn’t all about the huge houses and fancy cars, etc. It was about retiring by the time you are 50 and traveling, spending time with your children and grandchildren and enjoying life. That is what most of the small business owners did.
But with that said, I would be lying if I didn’t drool and get a little (OK a lot) excited when one of the doctors would pull up in his brand new Porsche 911. After all, everyone deserves one toy, right?
[Photo Credit: Gil Megidish]