Often, overconfidence leads to bad investment decisions. This is especially true for high net worth individuals as their overconfidence grows from past successes in their professional life. Of course, confidence is a good quality to have when making investment decisions but overconfidence can often lead to bad decisions.

So, what are some common mistakes affluent investors make?  Whether you are looking for a financial advisor Barrington or seeking professional help for investment management Glenview, you should try to avoid the following mistakes when making your investment decisions.

1. Not diversifying enough

If you are getting a high ROI from concentrated investments, it could be tempting to stick to what’s working for you. But keeping all your eggs in one basket could be risky. Buying shares of a single company means your fate is dependent on their performance. If the company goes belly up, you’ll lose most of your money in an instant.

However, just buying shares of multiple companies isn’t enough. A diversified investment portfolio means you have a collection of investments across different asset classes, including stocks, bonds, ETFs, commodities and real estate. Also, consider investing internationally. Look for opportunities in other countries to reap the benefits of geographical diversity.

2. Excessive portfolio rebalancing

You should review and adjust your asset allocation from time to time. This is called portfolio rebalancing. But constantly tweaking your investment portfolio can do more harm than good. In fact, excessive portfolio rebalancing can derail you from achieving your long-term financial goals. So start by setting rules for when and how you should rebalance your portfolio. For instance, you can plan a quarterly or annual rebalancing. Or, maybe you don’t want to rebalance until your asset allocation changes a certain percentage. For instance, you won’t tweak your investment portfolio until your stock allocation drops below 70%. Once you have a clear plan, consider hiring a professional to tackle your day-to-day investing.  

3. Neglecting tax planning

Many high net worth families make this mistake. Without a solid tax strategy, you could end up paying more on taxes. Also, if you neglect your tax planning now, it might mean your family members will have to pay more taxes after your passing. Tax planning is also important for your day-to-day investing. Ideally, try to use many different types of investment accounts, including tax-efficient vehicles, such as IRAs or a 401k. Also, make sure you are not missing out on tax benefits. For instance, if you donate money, you may qualify for a tax deduction. You can take advantage of estate and gift taxes as well. If you can establish that your business is a pass-through business, you could get a 20% deduction of your business income. As a high net worth individual, you can take advantage of this tax law by setting up a limited liability company.

It is always a good idea to seek professional advice for tax planning. Thankfully, finding a good financial consultant is easy these days. Whether you need a financial advisor Barrington or help with investment management Glenview, you can easily find someone with the right skills and experience.