The proper management of an individual's wealth is crucial. Although this certainly seems obvious, the fact is that a considerable number of people actually lack proper wealth and asset management. As a result, they face the prospect of experiencing one or all of the five primary dangers associated with bad wealth management.
Before turning to these specific dangers associated with bad wealth management, a person must understand the basic signals that his or her wealth and assets are not being managed appropriately. If these warning signs exist, a person must take appropriate action to bring order to his or her investment portfolio.
A fundamental sign that a person has poor management wealth is below average returns on his or her investments. Data on how particular types of investments should perform are widely available.
Another key sign that a person has inadequate wealth management is found in a lack of diversification. The old cliché about not putting all of your eggs into one basket is directly relevant to wealth management.
With these factors in mind, an examination of the specific dangers of poor wealth management are:
- Loss of principal. When it comes to investing, the principal is the asset from which a person hopes to generate revenue. For example, corporate stock is an asset that can serve as the principal of an investment. Without proper management, a person may end up owning stock in a company that under-performs, eventually resulting in a loss of value of that corporation's stock.
- Lack of retirement money. A key reason people accumulate wealth and make investments is to prepare for retirement. A significant danger associated with bad wealth management is lack of proper funds for a secure retirement. Unfortunately, this scenario is becoming increasingly more common in this day and age.
- Over-extended spending. Another danger associated with bad wealth management is over extended spending. In some instances, a person – relying on what was anticipated in the way of investment revenue and success – spends money beyond what is appropriate considering the rate of return on investment. The net effect of this situation is very serious and can result in long-lasting financial problems.
- Threat to personal assets. Related to overspending, another danger associated with bad wealth management is a threat to other personal assets. Simply put, when investments are not managed properly, a person may end up having to sell important personal assets to make ends meet. For example, you could end up in a situation where you must sell your home in order to survive financially.
- Increased and unmanageable debt. Improperly managed wealth and investments can result in unmanageable debt. A person may end up having to borrow money (or charge a great deal on credit cards) in order to survive on a day to day basis. Overtime, this debt can be come quite unmanageable.
It's easier to properly manage your wealth in the first place than it is to recover from poor wealth management! Be smart and make good decisions from the get-go.
