Is 100X the answer?

By Financial Advisor Peter Egolf

Imagine waking up one day to find that your assets have grown by 100 times overnight. Your $100,000 is now $10,000,000.

Whether it's a lottery win, business sale, or inheritance, sudden wealth can seem like the answer to all your problems. But is it? While extreme increases in wealth may fulfill economic needs, they don't necessarily lead to the psychological or behavioral changes that are helpful at any wealth level.

The unexpected downsides to multi-generational wealth

Consider this: 70% of wealthy families lose their wealth by the second generation and 90% by the third.¹ Professional athletes who earn millions during their careers often face financial hardships after retirement. Even lottery winners face massive challenges with their newfound wealth. Improving your financial health is more complicated than just accumulating wealth.

You can improve financial health through behavior

So, how can you manage your finances effectively? Here are two tips:

First, regardless of your wealth level,² it's essential to learn how to manage your finances. This means finding reliable sources of information that aren't paid via multiple conflicts of interest.³ Educate yourself or seek out trusted advisors who have your best interests in mind.

Second, it's crucial to address your weaknesses. Saving effectively can be a problem for investors throughout the accumulation points of their lives. Investors who are natural savers may face the challenge of switching gears at the decumulation point (financial independence or retirement) even when they have the desire and means to do so. Remember that your strengths can become your weaknesses, so your behaviors will need to adapt to changing circumstances.

In summary, wealth may seem like the answer to all your problems, but it's important to consider the limitations of money and take steps to manage your finances effectively, regardless of your wealth level.

1. Generational Wealth: Why do 70% of Families Lose Their Wealth in the 2nd Generation?
2. As your wealth grows, it's essential to develop your money management and life skills accordingly, as having a significant amount of wealth doesn't guarantee wise decision-making. Unfortunately, the financial industry can offer high-cost, illiquid, and potentially unnecessary investment products to higher net-worth individuals.
3. Too many financial advisors.