The more money you have, ironically, the more worries you might have too. Empower (Personal Capital), a digital wealth advisor with free financial tools, released its latest Affluent Investor report. Among other things, it highlights the biggest financial concerns of affluent investors.
The biggest surprise from one of its surveys is that folks with more than $500,000 in investable assets are most worried about a financially secure retirement. Think about that for a minute. With the median retirement savings for 56 – 61 year olds in America at only ~$20,000, Americans with 25X that amount cite financial security as their top worry!
With $500,000+ in investable assets alone, one can presume that most survey respondents have net worths in excess of $1,000,000. After all, about ~85% of the typical American's net worth is tied up in their primary residence. Check out the survey results.
The Biggest Financial Concerns Of Affluent Investors
I bet most people in the world would consider having $500,000 in investable assets plus a home to be a financial life well done. Therefore, we can conclude that affluent investors have to be one of the most paranoid demographics around, especially since 38% said they are also worried about losing their wealth.
It is fascinating the biggest financial concern from the mass affluent is that they will run out of money. Luckily, most all of us are rational beings. If we encounter difficult times, we'll slash our expenses and find new ways to make income. As a result, we will likely never run out of money.
Why Are Affluent Investors So Paranoid?
Most of the people who've been able to amass over $500,000 in investable assets are probably older than 37, the median age in America. Therefore, one can postulate that these investors have lived through the housing crisis and maybe even the 2000 dotcom bubble with a significant amount of assets.
They've seen their investments get slashed by a third within 12 months a couple of times. They know dozens of people who were let go from a job they needed and remained jobless or underemployed for years.
When you amass $500,000+ in investable assets, you naturally start getting paranoid about losing all your money that took years, if not decades to accumulate. That paranoia only tends to get worse the more money you have in risk assets. After all, it takes a 100% return to get back to even if you lose 50% of your money.
Why My Concerns Grew
Once I accumulated over $1,000,000 in investable assets, it no longer seemed prudent to allocate all my money towards stocks. Instead, I began piling most of my money into real estate to diversify away from my 401k, my company stock, and my career in equities. Little did I truly realize my “diversification,” starting in 2003, was actually a 5X leverage concentrated bet on San Francisco real estate.
The irony with having very little to invest is that you simply don't have much financial worry. Think back to how happy you were in high school, college, or the first few years after work. All you cared about was having a good time and maybe saving a little money on the side for a vacation or a new ride. Is it any wonder why so many of us were happier before the age of 35?
It was only until after I built some passive income and started this site did my investing paranoia begin to wane. Writing about your fears is a lot like speaking to a therapist who helps put things into perspective.
My Top Three Financial Concerns
Here are my biggest financial concerns.
1) Poor investment returns from my rental home proceeds.
Although it's been a relief to no longer manage a rental property that comes with a $23,000 a year annual tax bill, I know I'll be disappointed with myself in 20 years when I revisit how cheap I sold it for. The only solution to minimizing disappointment is earning at least a 5% annual return on my proceeds that cause minimal worry.
My hope is that real estate crowdfunding, the stock market, and the municipal bond market will provide such an outcome, but I'll never know for sure. So far, my investments in all three asset classes have done well since I sold my rental property in 2017. However, there was a big scare in March 2020.
2) A large decline in my online business.
My online business provides fantastic supplemental income to my current passive income investments. I'm constantly reinvesting more than 50% of my online income to create more passive income. But one day it might go way down or go away.
But as I look into the future, I'm thinking of taking things down a notch to spend more time with my son and daughter. I'm too tired post over one year of lockdowns since the pandemic began. It's time to enjoy life more!
The creation of the FS iTunes channel is one way for me to buy time during the weeks I no longer want to write. It's potentially a new revenue generator as I've already been offered two sponsorship proposals.
3) The financial well-being of my in-laws.
My parents are thankfully financially secure due to their long careers in the US Foreign Service. They lead frugal lives with no debt, minimal expenses, have healthcare, and pensions for life.
My in-laws, however, are not as lucky. They are surviving OK, but I want them to be thriving at their age. I want to find a way to financially help them without offending their honor. This is a tricky subject that deserves a dedicated post.
Related: How To Make A Lot Of Money In The Stock Market And Still Feel Bad
4) Living long enough to see my children grown up.
Perhaps my biggest concern isn't a financial one. Given we had children late, we won't be around as long as we could have been in their lives. Therefore, the goal is to get in ideal shape and live as long as possible. I'd like to at least see my parents grow up and find someone who loves them.
Try Not To Let Wealth Get In The Way Of Happiness
The amount of financial worry six figure income earners and high net worth individuals have is quite a paradox. But paranoia helps investors accumulate more capital in their lifetimes than those who couldn't give two poops about financial freedom. However, investing FOMO never allows folks to ever be satisfied with how much they have.
The key to being financially happy when you're already doing well is to compare your current self to your past self and not to other people. If you can focus on your own progress, dare I say your happiness meter might jump up a point or two!
Recommendation To Build Wealth
Sign up for Personal Capital, the web's #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you're doing. I've been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Diversify Into Real Estate
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. The -32% decline in March 2020 was the latest example. However, real estate held steady and appreciated in value then.
Diversification and owning a real asset helps minimize financial concerns. I'd much rather invest in a stable asset that provides shelter and income than a security that could lose half its value overnight.
Take a look at my two favorite real estate crowdfunding platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private real estate funds. Fundrise has been around since 2012 and now manages over $3.5 billion for over 500,000 investors. Its funds predominantly invest in residential and industrial properties in the Sunbelt region, where valuations are lower and rental yields are higher.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $954,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Both platforms are Financial Samurai sponsors, and Financial Samurai is a six-figure investor in Fundrise Funds, including the Innovation Fund. I want to invest in private AI companies because they are the future.
The Biggest Financial Concerns Of Affluent Investors is a Financial Samurai original post.
Becoming wealthy does not eliminate worry. My wife and I have worked hard have been fortunate to have reached the upper 0.1% of income earners. We are retiring this year in our early 50’s but although we don’t worry much about money, we have shifted our worries to our kids futures(will they choose a partner wisely) and our own health. It’s certainly less stressful but the worries are part of the human condition.
I’m of two minds about this, but I’m not paranoid as downturns usually don’t last long. And yet…
As millions of Boomers (a generation that was given a planetful of resources and did very little with it – besides consume) retire, one wonders if the stock market will suffer a stagnation lasting for a decade or more as they cash out their 401k and Roth plans. As the demo pyramid becomes a cylinder, it will take a while until that sorts itself out. Likewise as they sell their expensive houses for smaller ones, one wonders who will buy them in twenty years as most millennials are broke and have limited prospects for the future due to systemic changes in the economy.
This is all depressing stuff, but given the low level of savings and investments among that generation, it’s possible that the selloff won’t be as dire or dramatic. It would be ironic if the lack of savings of the Boomers is what keeps the market from being flat or in a tail spin until 2035 or so.
Sam – thanks for the great post. I was wondering if you might be able to share more about your experiences living with parents in the foreign service. Where did you live as a child (geographically)? Are you fluent in any other languages? What kinds of schools did you attend? It sounds like a remarkable childhood. I remember living in the Philippines as a three year old (military family), but this was the extent of my overseas experiences. I imagine that growing up overseas with new places every few years (assuming you moved around a lot) kept things fresh and interesting. I’d love to hear more on this. It would be interesting to see a blog post perhaps quantifying what it would cost to be able to do this for career professionals with a “normal job”. Thanks again.
Eric
It was a great adventure. Went to international schools in Taipei, Kuala Lumpur, Osaka, and Lusaka.
My Mandarin used to be pretty fluent. But now it is Rusty. It’s such a shame and I’d like to go live abroad in a Mandarin speaking country to get it back.
Hey Sam, you can get it back by watching TV Channel 26 in SF. I lived in Taipei and Kuala Lumpur before but I kept my Mandarin speaking by watching Chinese soap-opera on TV. As you may know, the more languages that you speak which help your memory in old age. Good Luck.
So funny you mention this because I have 26 episodes of some Korean drama dubbed in Mandarin that I am prepared to watch. Period dramas are the best! If you’ve ever watched winter sonata and this other one I forget.
I do have all the listed worries to various extents. On top of that, one always have to work and plan to prevent the taxmen take their big cuts especially for a year like 2017 with the portfolio annual ROC up in the 45% range. Always have to bear in mind though a return like this is not typical and unusual. We are in the sandwich generation in which we are not poor but definitely not rich yet to retire and yet the income taxes (both federal and state) are killing us.
I like the last part the best; to compare yourself to yourself from the past rather than others. I suppose it also makes sense why older folks may worry about a market downturn, especially if they may be retired and are counting on their retirement assets to fund their life.
Instead of concerned, I would say I’m focused – most of the time :-) on channeling $$$ to retirement and after-tax accounts that can have the time to grow.
I can relate to this even as someone in their mid-20s. It’s seeing everyone around you and competing with that average instead of the actual average.
These days I spend most of my time fretting I won’t retire by my deadline and wishing I had started saving back in high school. Also, how to minimize taxes as the tax bill is so complicated.
I haven’t asked my CPA yet, but I’m curious if you’ll still have to pay AMT if you’re an LLC? So essentially it’s a 21 percent cap, unless you make over the AMT amount? At the very least, the pass through clause is exciting! I’m sad about SALT though :/.
My biggest worry is not having enough diversification in my asset portfolio. I’m trying to get there through business ownership and real estate, but I’m paranoid the bottom will fall out before I can get there.
I’m not at a half million in investable assets yet, so maybe I should still be in the Hakuna Matata phase, but my brain doesn’t work like that.
I also worry about my parents losing their pensions in retirement due to markets or budget cuts. My folks are two lifelong public sector workers who didn’t save much for retirement outside of their pension plans and Social Security. If anything happened to their retirement income it would likely fall to me to ensure their wellbeing.
Interesting that covering healthcare costs isn’t an option in the Personal Capital survey. We have over $500K in investable assets and my biggest concern is the rising cost of health insurance premiums and how much of my retirement budget that will ultimately take up. Which I guess would make me select “being financially secure in retirement”. I would love to see a follow up survey from Personal Capital on what makes those people worried – healthcare, market downturns early in retirement, etc.
I theorize the ways that the rich defend their $500,000 dollars worth of capital is different then how I would defend my $5 worth of capital. You mention that you diversified away from equities into real estate. Is diversifying their income stream to minimize risk the standard and socially acceptable way among the rich to defend their money and alleviate their financial worries?
I can sum up my leading financial concern in one line:
Stock Market Crash!
We’re in a bubble now. It’s going to pop!
I just love working on my businesses and love making them stronger and stronger so paranoia is helping to provide great products and value for my customers.
Although I’m not “affluent” I can attest that taxes stress me out, just thinking about them in theory. I’m only in my early thirties but I’ve been burned a few times on my taxes and now do a rough tax return early on so I can determine whether I have to put money into a tax deferred savings account. I’m probably someone who could do with getting a accountant but I have issues giving up all the control over my taxes.
Interesting to read this post – I just paid off my house and used a bunch of cash for renovations (wood floors, interior/exterior paint, 5-hole putting green in place of my backyard lawn, etc…). Feeling very “cash poor” and very anxious about Xmas spending at the moment because my savings account is less than my tolerance threshold. I’ll have it built back up in a couple of months, but it brought back the panic of my 20’s and 30’s when I was in credit card debt and had zero savings. You would think the comfort of a $1M investment portfolio, a paid off house and a very nice six fig salary would ease that fear but it’s always there. Some things are just very deep. ;-)
Fear of running out money during retirement is to me pretty high on list for majority of public. I say if one fully relies on passive income produced by good quality dividend paying companies, without taking any cut from sale of position itself, then that will be ideal to reach financial freedom.
Just my 2 cents.
Great post, keep up the good work. Happy Investing.
The Dividend Karma.
I definitely fear our money is going to run out. I also know this is irrational. As our passive income stream only covers about 65% at present of our annual budget I have a minor heart attack every time I have to take money out of the accounts.
However I also know that these are our most expensive times. In 10 years our kids will be out of college, we can downsize our house and we will have pensions kicking in. So as long as we don’t do anything stupid over the next few years I really shouldn’t worry.
We know plenty of people with bigger problems than ours so we should be thankful for what we have.
I worry about my health, which is unhealthy.
I worry about my time, which takes up time.
I worry about BART, which makes me Uber.
I don’t worry about my investments, which makes me happy.
It’s sad to say that what I really worry most about is women in my life. My partner, my sister, my mother, my cousin, my friends. Long before the harassment in the news, I think women have it tough with career, motherhood, married, single, children, appearance, social media, etc. I don’t know how they do it. How is it even possible to do all this?
Great comment. So logical and good you brought up the topic of women. With all that’s going on, this is good for women now in in the future. There will ultimately be some setbacks, but over the longer run, this movement is going to make a huge difference for female generations to come.
I guess your biggest concern is when your son starts a family and u want him to have his own house in addition to a rented property cause it’s only going to get harder for the next generation. At least u still have another rental in the city and you’ll be dwelling on whether to let your sons family ocxupy it and give up the rental income or use the rental income for them to rent elsewhere for their ‘own’ place.
There’s always the inter generational household like your neighbors and many in the bay but then you’ll have to see if your daughter in law agrees to live with u old folks… Hahhaa do u really want to think that far? I don’t think you would have time to dwell on this if u were going into your old job everyday .
Wouldn’t he and his children have the ability to buy their own homes? That’s what I did, most people do and what most people have been doing since the beginning.
Did your parents pay for your place?
I agree with Dr. Remoulak: you get wealthy because you DO worry about your finances. People that don’t care about such things, don’t acquire wealth (unless they come about it through some windfall). This actually ties in with your comments about your parents and in-laws. My parents came to the U.S. shortly after WWII with hardly anything, worked hard, saved, spent frugally, invested wisely, and now live very comfortably. Is it coincidence that all three of their children were successful and retired early? My in-laws are very unsavvy financially, squandered their pension, and are now just scraping by. Is it coincidence that their two children also have little interest in investing and accumulating wealth? To what extent do you think financial acumen is acquired from your parents as you are growing up? Inheritances aside, have you seen any studies on how much one’s success is linked to that of one’s parents?
I think kids are going to look up to their parents and try to respect them by following that path if you are setting the example. However, many still don’t care under those circumstances. On the flip side of the equation growing up in a family that is not that well financially educated does not mean you are doomed. It is up to each individual to educate themselves. Very little was taught to me from family instead I was fortunate enough to use many of the resources we all have at our finger tips today. Anyone can go to a library good about finances and start grinding away.
I don’t know…my grandparents grew up during the Depression and under the subjugation of Jim Crow. In spite of everything they both managed to obtain degrees and professional jobs. Even though they could not get a mortgage from a bank and had to do a seller financed mortgage at more than twice the going interest rate for the time, they still paid off their mortgage early. Grandma and grandpa were excellent savers and investors. Their daughters on the hand…not so much. My parents are actually pretty clueless when it comes to money. They raised me and yet I became diligent with my finances.
I think it all depends on how you react to how you were raised. I didn’t want to be like my parents, two well educated professionals who always stressed about money. My grandparents wanted their children to not want for anything and in providing so well neglected to teach financial literacy.
All of that to say, who knows what makes each of us go in the direction we do. Yeah, parents have influence but often that influence makes children do the opposite.
Same here, my grandparents are “uneducated” farmers – they had 7 years and 4 years of school, respectively – which is not unheard of in my country and their time (pre – WW2). Still, they have a much better finance understanding and better savings than my parents which each went to good universities and had good careers but now they are retired with little savings. I and my sister on the other hand are way better with money than my parents, although we got no “training” from my parents at all, nor did we talked money with my grandparents, because they lived far from us. I guess finance literacy skipped a generation in my family.
I’m most concerned about another market downturn that affects multiple sectors like equities and real estate, as well as how much college is going to cost in the more distant future, that climate change will negatively affect our local economy and real estate values, and that if I hold on to too much cash, it will be eaten by inflation. I’m worried that in-laws will have a health problem that we’ll have to cover while raising a young family of our own. There are a lot of financial risks in the future that are not controllable, and it’s hard not to worry, even with over $500,000 in investable assets!
Maybe I am unique, but my biggest worry is healthcare costs. If I do retire early, I’ll be on my own for health insurance and that market seems all messed up. But I guess with enough $$, it doesn’t really matter, but $2000/month for a family of 4 on a high deductible plan seems crazy, but it’s coming closer and closer with 10-20% increases every year.
Once you bake in $2,000/month for family health care costs, there should be no fear. Just reality that that is the cost.
Start a business. Make it a deductible expense.
Haha at “I fear having spoiled kids”, preach it, me too! That’s only 31%? I would think that’s more of a worry, like at 50%.
The more we build, the more paranoid I get. It could just be a common trait of a good investor. It’s like in being in school. You get good grades but you don’t stop to think about that, it’s there, but you’re still studying for the exam test and the one after that etc.
I relate to this big time. Although I am not in this category because I do not come from family money I am making my way there. Without a major market set back I could fit this criteria as I enter my early 30s.
Each year it just seems like I actually become more worried as I find more success. It is uncharted territory for me so I have a lot of thoughts always running through my head.
1) As an inexperienced investor someone who has invested for less then a decade fits this description in my opinion. I keep having a feeling that a massive crash is around the corner, maybe that is just paranoia? Did you have this when you were in your 20’s and started to hit your stride?
2) I worry about a recession and job loss so I am doing everything in my power to stack money away now as my wife and I have a good income and are young.
3) I think I am a financial markets pessimist. As I earn more and hoard more I feel really bad that there are so many out there that will not have the opportunity to escape the rat race. You need a lot of factors to succeed in a plan and I feel like I wish there was more equality in the world. Hard for me to go to 3rd world countries and travel like a rich American while everyone is fighting to survive.
My biggest worry is about asset allocation and future tax implications at this point in my life. My wife and I have saved and invested pretty well and are FI. I recently turned 60 and know that our portfolio is too aggressively invested and our deferred piece needs a plan to better manage future taxes. I’m in the process of putting together my own “Request for Proposal” around my wants and needs in a future investment and tax plan and starting to “interview” prospective retirement planners and then use my CPA to help me select the right set of advisors for us to work with.
This is a stressful process but I know I will sleep better once I’ve dealt with this transformation from accumulation to preservation.
Wow I had no idea the rich worry so much. I know some wealthy people can get depressed, but I didn’t expect them to worry about financially secure during retirement.
My biggest fear right now is that both hubby and I will lose our jobs. That motivates us to save more, stay frugal, and invest wisely.
I’m glad you started the podcast. I’ve seen so many people do audio versions of your posts. You should be the best person to tell your stories! :)
The thing is, $500k in assets really isn’t “rich.” At a 4% withdrawal rate that is only $20k/year in retirement income. Even if your house is completely paid off that isn’t a lot of money. Especially compared to the salary you were probably making before retirement to save that much money. Depending on the average age of the people in the survey, I would be worried too if I had $500k and was 50+ years old.
It’s at least $500K in investable assets.
I’d say $500K in investable assets + a paid off home is rich in retirement. You’ve got $20K using a 4% withdrawal rate + $40,000+ from Social Security for both of you. Given you don’t have to save for retirement, life is pretty good.
A lot of your audience is, like yourself, on the path to early retirement. (We’re certainly a much higher percentage than the general population.)
Most of us don’t expect to receive Social Security or Medicare benefits for twenty, thirty, or even forty years. Not to mention the likelihood of cuts these entitlement programs in the coming decades. So we look at things like “asset allocation in retirement” and “safe withdrawal rate” a little differently than someone who retires at age 65.
Have there been more than one doing an audio version of my posts? I’m only aware of one whom asked for my permission. Glad to have you as a listener!
I know thousands of investors with at least $500K in investable assets. I don’t know any with a car like the one in the picture.
I think most of your readers would be surprised to learn just how similar the lives of millionaires and multi-millionaires are to their own.