Building Wealth vs Keeping Wealth
Many people spend their entire financial lives focused on accumulating as much wealth as possible. More income, more savings, more investments. Generally speaking that is a good thing since it provides stability and financial freedom. Building wealth is exciting. You can see the numbers go up. You feel the momentum. It is easy to measure progress.
But one pattern I often see develop during conversations with clients is the feeling that once they have wealth, they can’t lose it. People spend decades becoming good at building wealth and almost no time thinking about how to keep it. Those are two very different skill sets, and confusing one for the other can be an expensive mistake. A casual internet search will bring up countless examples of professional athletes, lotto winners, and celebrities squandering their money to the point where they have nothing. They completely lacked the foresight to develop a plan to keep their windfall.
Building wealth is about saving and patience. You earn, you save, you invest, and you stay consistent. Time is your biggest ally. A young investor who contributes regularly to a diversified portfolio and leaves it alone for 30 years is going to do well. The math is relatively simple, and compound interest does most of the work for you. The biggest risk in the wealth building phase (often called the “accumulation phase”) is not doing anything at all or letting emotions drive you out of the stock market during a downturn.
Keeping wealth requires discipline and planning. Once you have accumulated real money, the risks shift. Taxes become an important part of your planning process. A poorly timed Roth conversion, an estate without proper planning, or an unexpected medical expense can do real damage to a portfolio that took decades to build. The threats also come from outside your portfolio. Lawsuits, scams, bad business decisions, and even family dynamics can erode wealth faster than a bear market ever could. I often see people give excessively to family, or “loan” money to their friends without every receiving anything back. It’s important to make sure your future is secure before giving away more than your portfolio can handle.
Building wealth requires patience and a decent savings rate. Keeping wealth requires strategy, protection, and a solid team around you (CFP®, CPA’s, Estate attorneys etc.)
Here are some elements to consider when making that transition:
Tax planning becomes more important. During the “accumulation phase” of your life, you mostly just want to take advantage of saving in retirement accounts, and let the numbers gradually grow as you get older. Once you are wealthy, the question of how you withdraw, convert, and transfer money becomes just as important as how you invested it in the first place.
Insurance and legal structures protect assets. Umbrella insurance, proper titling of assets, trusts, and updated beneficiary designations are not exciting, but critical. Protecting your assets unfortunately requires spending more money. A good umbrella policy can protect you from personal injury or medical claims. I have seen people spend 30 years building a great portfolio only to have it exposed to unnecessary risk because they never updated their estate documents or purchased a good insurance policy.
Lifestyle inflation is the biggest threat. As wealth grows, spending often grows with it. That is not inherently a bad thing, but if your spending permanently adjusts upward every time your portfolio hits a new high, you are building a lifestyle that requires constant growth just to maintain it. That creates pressure and risk, especially heading into retirement. Keeping your wealth requires an actual spending plan, with reasonable limits on how and when you spend money. Many people try and preserve their lifestyle at all costs, rather than adjusting their spending and retirement withdrawals to the reality of their situation.
The good news is that both phases of this journey are very manageable with the right plan. The key is to recognize when your priorities need to shift. If you are still in full growth mode but approaching retirement, re-assessing your risk tolerance and goals is extremely important. Further, living within your bounds and working with professionals to develop a withdrawal and spending strategy with guardrails and inflation protection is also critical.