Contrary to popular belief, the rich don’t always get richer. In fact, according to a Federal Reserve study, one-third of those in the top 1 percent wealthiest individuals in 2007 had fallen off the list in 2009.
According to a Wall Street Journal article, private banking CEO Maria Elena Lagomasino was curious about this wealth fall-off, and commissioned a report while she was CEO of J.P. Morgan Private Bank to research the matter.
The study found five main reasons why the rich become poorer:
Overconcentration – betting it all on a single company or investment.
Leverage – using debt to maximize investment gains, expand businesses, and fund lavish lifestyles.
Spending – many wealthy have no idea how much they can afford, and spend unwisely.
The “Toxic Cocktail” – Betting big, borrowing big on a business, and funding a large lifestyle.
Family issues – divorce, inheritance battles, family business disputes.
Financial experts recommend that if you’re wealthy and want to stay that way, your debt should not exceed 25 percent of your net worth, and you shouldn’t keep more than 25 percent of your wealth in one illiquid asset.
Let our Costa Mesa law offices help you get started by contacting us today.