Tuesday, February 21, 2023

The Problem With Wealth Is It Is Easy To Lose

A problem with wealth is it is easy to lose. This is far more likely to happen than most people think, and that lies in the fact that if you have wealth, other people want it. Ironically, people often work hard to save and accumulate wealth and forget that it is just as important to protect it. In our modern age where so much of our wealth is held in financial instruments and paper promises buried in a computer or high up in the clouds, we should expect a slew of new ways to surface making this a reality.


This is not something investors and savers want to face. Risk matters but is often ignored when greed and the "fear of missing out" take over. This is why it is important to remember the nasty lesson the failure of FTX recently brought into focus. It reminded investors that one minute it is there and the next minute it is gone. The fact the financial and financial retirement industry is often in cahoots with Wall Street and Washington in siphoning off your wealth does not help.

As a person that is dubious of paper promises, I view the more than 100,000 claims against FTX as a monument to how easily even really smart individuals can be duped out of their money. Of course, the crypto "industry" or sector is an animal of a different color and contains a special kind of risk far beyond what many investors wish to deal with. 

Annuities, pensions, stocks, and such promises of future payment tend to dominate the list of favorite vessels in which people turn to store their wealth. Many of these are leveraged to maximize returns and garner higher yields on our investment. Cash is another option but holding it in your possession leaves one open to theft and means the money will earn no interest. What is often missing or overlooked are tangible fully-paid for items and things that are likely to hold their value. People tend to avoid tangible assets in their control because they are often inconvenient. Valuables can be a pain to have about and they often need to be insured which also calls attention to their existence.

Capital Preservation Must Be Job One!

Truth be told most people are not overly endowed with discipline this includes many people that amass a fortune. This often means that many wealthy people tend to "misplace" or lose track of where they have placed their wealth. More often than we wish to admit, wealth is simply put into a system that is on autopilot and left to fend for itself. The famous quote attributed to Warren Buffet that "You only learn who has been swimming naked when the tide goes out." Comes as a word of warning to those who have grown complacent.  

When you subcontract out control of your wealth or turn it over to a money manager you often get promises but no ironclad guarantee. Confidence in a money manager can quickly be dashed, all the people invested with Bernie Madoff discovered just how suddenly things can go south and promises turn hollow. While it has become both fashionable and common in recent years to let someone who knows and specializes in financial planning and markets to control this segment of our lives I feel it is a big mistake and a dereliction of duty. If wealth came with a warning notice it would say, "Holder Beware, This Commodity May Vanish, Spoil, Or Grow Obsolete At Any Time!"

When it comes to preserving our wealth, eliminating our financial vulnerabilities may be just as important as getting ahead. At times while "cruising" down the highway of life we become so focused on our destination we become oblivious to the dangers around us. Sometimes the enemy is complacency and at others a sense of invincibility. Adding to this feeling is the fact that many predictions of problems ahead fail to live up to the hype they receive. Regardless, when it comes to our finances, it would be wise for all of us to ask, where can I get hurt? This should be followed by actions that eliminate the danger.


(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

1 comment:

  1. My mother taught me a lot about "wealth". It's easier to learn to spend less than try and earn more. Live modestly, not ostentatiously. Don't appear rich especially when travelling. Don't borrow if you can possibly help it. Simple but easily achievable goals.