From Rich to Wealthy: Why Your Get-Rich Skills Won’t Keep You Rich

September 2024 - financial planning

From Rich to Wealthy:

Why Your Get-Rich Skills Won’t Keep You Rich

 

The story of the Vanderbilt family is a cautionary tale that starkly illustrates the difference between getting rich and staying rich. Cornelius Vanderbilt, known as “The Commodore,” amassed a fortune that would be worth over $400 billion today. Yet, within a few generations, the vast wealth he created had largely dissipated. Anderson Cooper, a descendant of the Vanderbilts and son of Gloria Vanderbilt, famously noted that he did not inherit any of that fortune and had to build his own success from scratch. This dramatic rise and fall underscore a crucial truth: the skills required to accumulate wealth are vastly different from those needed to preserve it.

 

The Dichotomy of Wealth: Accumulation vs. Preservation

Morgan Housel, in his book The Psychology of Money, emphasizes that “getting rich” often involves risk-taking, aggressive investments, and a focus on rapid growth. In contrast, “staying rich” requires a completely different mindset—one focused on risk management, emotional discipline, and long-term thinking. Housel succinctly puts it: “Getting money is one thing. Keeping it is another.”

 

Warren Buffett, one of the wealthiest individuals in history, made over 90% of his wealth after the age of 60. This remarkable fact highlights the power of long-term thinking and compounding. Buffett’s success wasn’t just about making smart investments; it was about consistently making prudent decisions over decades. He once said, “The first rule of an investment is don’t lose money. The second rule is don’t forget the first rule.” This wisdom captures the essence of wealth preservation.

 

Rich vs. Wealthy: Understanding the Difference

Rich: Being rich means having a high income that allows you to pay your mortgage, credit card bills, and other expenses every month. It’s about financial comfort and the ability to afford a luxurious lifestyle.

Wealthy: Being wealthy, on the other hand, is about freedom of choice and financial independence. Wealth means having sufficient assets that generate income, allowing you to live comfortably without the need to work actively. It’s about long-term financial security and the ability to make choices without financial constraints.

 

 

Strategic Planning: From Wealth Accumulation to Wealth Preservation

Financial Discipline and Diversification:

Investment Strategy: Transition from high-risk, high-reward investments to a more diversified portfolio. While aggressive investments may have been key to your initial wealth, preserving it requires a balanced approach with a mix of stocks, bonds, real estate, and other assets.

Risk Management: Implement risk management strategies to protect your wealth. This includes insurance policies, hedging strategies, and maintaining a solid emergency fund.

 

Understanding Risk vs. Luck:

Lottery Spending: Over $100 billion is spent on lottery tickets annually in the U.S., predominantly by individuals who can least afford it. This highlights a fundamental misunderstanding of luck versus risk. People often take more significant risks when they feel they have nothing to lose, but this approach can jeopardize financial security.

Informed Decision-Making: Recognize the difference between calculated risks and reckless gambling. Making informed, strategic decisions is crucial for wealth preservation.

 

Emotional and Personal Considerations

Wealth accumulation and preservation involve not just strategic planning but also significant emotional and personal considerations.

 

Emotional Intelligence and Adaptability

Maintaining a Wealth Mindset:

  • Avoid Lifestyle Inflation: Resist the temptation to dramatically increase your spending as your wealth grows. Living within your means ensures that your wealth can sustain itself over the long term.
  • Emotional Discipline: Wealth preservation requires emotional discipline to stick to your financial plan and avoid impulsive decisions that can jeopardize your financial security.
  • FOMO (Fear of Missing Out): Anyone driven by FOMO will never be truly wealthy. Chasing every hot investment or trend out of fear of missing out leads to poor financial decisions and increased risk. True wealth comes from steady, thoughtful investment and avoiding impulsive decisions.

 

Legacy and Family Considerations:

  • Family Education: Educate your family about financial literacy and the importance of preserving wealth. This includes teaching the next generation about budgeting, investing, and responsible spending.
  • Philanthropy and Values: Reflect on your values and consider how philanthropy can play a role in your legacy. Giving back can provide a sense of purpose and positively impact your community.

 

Practical Steps for Staying Rich

  • Periodic Assessments: Regularly review your financial situation with a trusted advisor. This ensures your strategies remain aligned with your goals and can be adjusted for changing market conditions or personal circumstances.
  • Performance Monitoring: Keep an eye on the performance of your investments and make adjustments as necessary to stay on track with your financial plan.

 

Focus on Wealth Preservation Tactics:

  • Income Diversification: Create multiple streams of income to reduce reliance on any single source. This could include dividends, rental income, and other passive income sources.
  • Asset Protection: Explore legal structures and instruments, such as trusts and limited liability entities, to protect your assets from potential creditors and legal claims.

 

Conclusion: Balancing Strategy and Emotion

Achieving and maintaining wealth requires a careful balance of strategic planning and emotional intelligence. By understanding the distinct skills needed for wealth preservation, seeking professional advice, and addressing the emotional aspects of wealth, affluent individuals can secure their financial legacy and enjoy the fruits of their labor for generations to come. As you navigate this journey, remember that the wisdom of financial sages like Warren Buffett and Morgan Housel can guide you toward a prosperous and secure future.

 

Contact The DiCiacco Team today, and let’s embark on this journey together.

We invite you to take the first step towards understanding and transforming your financial future by scheduling a consultation with us. This exploratory conversation will offer us both the opportunity to see if we’re a good fit, ensuring that your financial goals and our expertise align perfectly. Together, let’s unlock your full potential of your investments and pave the way for a prosperous financial future.

 

Leah Thomson Snell, CFP®

Partner & Managing Director

(626)521-9804   lsnell@snowdenlane.com

 

John DiCiaccio

Partner & Managing Director

(626)521-9801  jdiciaccio@snowdenlane.com

 

https://snowdenlane.com/advisors/diciaccio-team/

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