It seems logical that the wealthier the person, the better the investor. Think about it — who are you more likely to ask for a stock tip: Your friend with the expensive car or the guy washing it? But before stopping at the next mansion for financial advice, consider the following…
Other than a few iconic figures (e.g. Warren Buffett), wealthy people accumulated their fortunes in ways very different from the stock market. Some owned tech companies, some built railroads or buildings, and others were the beneficiaries of multigenerational estates. Very few of your wealthy friends, please note, achieved their affluence in the actual stock market. Thus, if you have a question on owning car dealerships, ask your friend who owns nineteen of them across town. But he or she may be the wrong person to approach about your portfolio.
In addition, the wealthy tend to be more risk-averse. While neuroscience has discovered humans innately react more strongly to loss than gain, the wealthy have an added emotional fear factor — becoming “unwealthy.” This heightened anxiety drives decision making, oftentimes subconsciously. So, if you are worried about the markets, it is quite probable that your very wealthy friend is even more worried than you.
In addition to the reasons above, the personal experience of this professional investor turned author provide empirical support for the non-correlation of wealth to market success. Countless mistakes and emotional miscalculations of the ultra-wealthy have been witness. And, unfortunate decisions and even overconfidence during stressful market periods have plagued the affluent more so than those with less net worth.
If you seek input on a stock, turn to someone with experience and documented market achievements. Within a portfolio, wealth does not necessarily mean success. And everyone, of any net worth, will benefit from this realization.
Jonathan Citrin is founder and CEO of CitrinGroup, an investment advisory firm located in Birmingham, MI. He is an adjunct professor of finance in the School of Business at Wayne State University.
Founded in 2003, CitrinGroup specializes in portfolio management and advises clients on investment and wealth planning. For more information visit http://www.citringroup.com.