We’re living in one of the most unusual market environments in decades. Valuations are elevated, AI is reshaping everything, the Fed has been accommodating, and geopolitical tensions are rising fast! In times like these, wealthy investors may see opportunity but also heightened risk. Throughout my career in advising affluent families, nonprofits, and other investors, I've seen patterns - both good and bad - that repeat themselves, as well as lessons learned.
Below are 10 mistakes wealthy investors should avoid this year, along with practical steps to stay on course.
Expecting Market Returns to Be “Average”
Most investors think of the S&P 500 averaging roughly 8–10% annually over long stretches. Reality shows the index rarely lands in that range in any given year. As illustrated below, returns for the index didn't fall into that range even once over the past 75 years. Typically, returns are meaningfully higher or lower, sometimes dramatically.
Distribution of S&P 500 Annual Returns Over 75 Years
Source: Slickcharts
Investor takeaway: Don’t anchor on averages. Have a mindset that stock returns vary significantly, then think of that volatility as the “toll” for higher long-term performance.
Spending Like the Bull Market Will Last Forever
Strong markets create a powerful illusion: “My portfolio is growing… I must be fine.” But rapid growth in spending and excessive leverage often go unnoticed until markets decline.
Two mistakes investors are prone to make in good times:
- Spending well above sustainable levels
- Carrying unnecessary debt
Upward markets can mask issues - downturns expose them quickly.
Investor takeaway: If your lifestyle depends on strong markets, your financial plan lacks durability.
Spending Too Little
On the flip side, one of the most common, but least discussed, mistakes among wealthy investors is optimizing portfolios while deferring life. As Bill Perkins notes in Die With Zero, “your life energy is limited.” For some, the real risk isn’t outliving your assets; it’s postponing meaningful experiences until health, time, or family dynamics make them impossible, leaving behind a strong balance sheet but an under-lived life.
Fear of running out keeps some wealthy investors from enjoying experiences for themselves and their families.
Three steps can help you plan with confidence:
- Estimate your likely annual withdrawals. This seems obvious, but you’d be surprised how often very wealthy individuals fail to create even a high-level budget. As a result, they never become truly comfortable with their spending because they haven't done the math.
- Ensure your asset allocation aligns with the required return.
- Run Monte Carlo simulations to assess long-term sustainability.
Thinking You’re Not Exposed to AI
Some investors tell me, “I’m not chasing AI stocks.” But if you own broad index funds, you own AI through hyperscalers like Microsoft, Alphabet, and Amazon, and through companies that power AI infrastructure, such as semiconductors, data centers, and energy providers.
AI has been a major driver of market returns. But valuations are stretched, and history shows that disruptive technologies produce big winners and many losers.
Investor takeaway: Understand your exposure to AI. Being overexposed introduces risk; having zero exposure misses opportunity.
Failing to Broadly Diversify
With lofty valuations, rising deficits, and growing geopolitical uncertainty, diversification matters now more than ever.
History provides a powerful reminder. In 1989, Japanese equities represented roughly 50% of global stock market capitalization, and I think you’d be surprised to learn (or remember) that eight of the world’s ten largest companies were Japanese! The momentum appeared unstoppable. What followed were decades of stagnation. And today? Japan comprises only about 5% of global equity market capitalization.
With the U.S. today accounting for nearly two-thirds of global market capitalization, the lesson is not that the U.S. will necessarily repeat Japan’s experience. Rather, it is that market leadership changes, often in ways few investors anticipate. Periods of extreme dominance, no matter how compelling the narrative, have historically proven to be temporary.
Investor takeaway: Concentration builds wealth; diversification preserves it. Thoughtful diversification can include not only diversifying equity holdings but adding bonds, alternatives, and more.
Assuming High Valuations Mean a Crash Is Imminent
Yes, valuations are elevated with the S&P 500 trading at a forward P/E of approximately 22 compared to the 25-year average of 16.7.[1]
But here’s an important insight: Valuations are poor predictors of performance over the short-term.
High valuations can stay high or move higher. Low valuations can remain depressed for extended periods. The following provides real-world examples of why valuations are much more helpful over longer periods.
Investor takeaway: Use valuations to set reasonable long-term expectations, not to time markets.
Not Being Liquid… Enough
Many wealthy investors allocate meaningfully to private equity, venture capital, private credit, and real assets. These can be powerful long‑term growth engines - but also come with capital calls, potentially arriving at precisely the wrong moment.
Consider the possibility of a 25% public‑market decline, followed by ongoing capital calls from private investments. Does your portfolio have ample liquidity to fund obligations without forcing sales at depressed prices?
And remember that liquidity shortfalls rarely appear in isolation. They tend to surface when markets are dislocated, correlations rise, and flexibility matters most. At those moments, even well-constructed portfolios can face challenges if liquidity is underestimated.
Our MBE Wealth Advisors regularly help investors model commitment pacing, expected drawdowns, and liquidity buffers; stress‑testing portfolios in advance so decisions during periods of market strain are deliberate, not reactive.
Investor takeaway: Illiquidity can enhance long‑term returns - but only when it is intentionally sized and thoughtfully managed.
Not Having a Pre‑Defined “Plan B” for Spending
Even very wealthy families may need to adjust spending during severe market downturns. The difference between confidence and stress is rarely net worth - it’s whether those adjustments have been thoughtfully considered in advance.
A well‑designed Plan B isn’t necessarily about sacrifice. It’s about optionality and knowing which expenses are flexible, which are essential, and which can be deferred if conditions warrant.
Your Plan B might include:
- Deferring major purchases or capital‑intensive projects
- Temporarily scaling back luxury travel or discretionary experiences
- Reducing carrying costs by selling one of several homes
- Modifying or pausing financial support for adult children
I believe that financial strength comes not just from your resources, but from your readiness.
Investor takeaway: Define spending priorities and tradeoffs before markets force the exercise.
Failing to Control What You Can Control
Markets are unpredictable; costs and taxes are not. Yet many investors overlook the elements fully within their control - fees, and even more important, tax drag.
Unfortunately, inefficiencies in these areas compound just as reliably as investment gains. Fund and advisory fees, transaction costs, and interest expense quietly erode returns, raising an important question: Do you have a clear understanding of the true, all‑in cost of your portfolio? On the tax front, unnecessary realized gains, poor asset location, and suboptimal loss harvesting can do even more damage. The result is a widening gap between market returns and what investors actually keep.
It is essential to incorporate asset-location analysis, capital‑gain budgeting, loss‑harvesting practices, and disciplined cost controls into your portfolio construction and ongoing management. The objective isn’t to minimize costs at all costs; it’s to ensure that every dollar paid (or surrendered in taxes) has a clear purpose and measurable value.
Investor takeaway: It’s not what you earn - it’s what you keep. Control fees, allocate deliberately, and build portfolios to generate attractive after-tax returns.
Managing Your Wealth Without an Intentional Strategy
The final (and often most costly) mistake is letting wealth drift without intentional direction. Business ventures, careers, family, health, and more all compete for your attention. Decisions get made incrementally, portfolios quietly accrete positions, and assumptions go unexamined. What began as a thoughtful approach can slowly turn into a set of disconnected choices.
But strong outcomes rarely happen by accident. They come from clarity of priorities, disciplined decision-making, and ongoing alignment between goals, spending, investments, risk, liquidity, and tax considerations. Life does get busy… which is precisely why it’s essential to assemble the right team of advisors, including accountants, attorneys, investment advisors, and others, who understand your objectives, challenge your assumptions, and keep your plan on course when markets, or life itself, become uncomfortable or complex.
Investor takeaway: Great outcomes come from intention, alignment, and accountability - not chance.
Final Thoughts
We live in exciting and unusual times. While every day brings us one step closer to the next bear market, it is also reasonable to believe this bull market may have room to run, supported by continued innovation, strong earnings, and a more accommodative Federal Reserve.
The best approach is not prediction, but preparation. Be intentional in how you deploy capital across investments, spending, philanthropy, and legacy goals.
Wealth doesn't manage itself — and in an environment this complex, the cost of inaction or drift can be significant. Whether you're reassessing your portfolio, stress-testing your liquidity, or simply wondering if your current strategy still reflects your goals, now is the right time to take a closer look. If you'd like a second set of eyes on your portfolio or financial plan, we'd welcome the conversation. Visit mbewealth.com to get in touch with our trusted wealth advisors.
Disclosures & Definition
The information provided is for educational and informational purposes only and does not constitute investment advice, and it should not be relied on as such. It should not be considered a solicitation to buy or sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your financial advisor, attorney, or tax advisor. For additional information and disclosures, please visit our website at www.mbewealth.com. MBE Wealth Management, LLC is a registered investment advisor.
This content is developed from sources believed to be providing accurate information, and provided by Fiducient Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Sources
[1] Jan. 8, 2026: Trendonify and FactSet
[2] ishares.com
[3] dimensional.com
[4] sparkwealthadvisors.com
[5] slickcharts.com