Reaching a $1 million net worth or building a seven-figure investment portfolio is an important financial milestone. But accumulating wealth and preserving wealth require two very different skill sets.
As your net worth grows, decisions involving investments, taxes, insurance, estate planning, and even everyday spending can have increasingly significant consequences.
The good news is that many of the financial mistakes high-net-worth households make are preventable.
In this educational webinar, Jim Hendricks, CFP® of Hendricks Wealth & Estate Management, discusses some of the most common mistakes people make after accumulating significant wealth—and steps investors can consider to help protect what they have worked to build.
What Are the Most Common Financial Mistakes Millionaires Make?
Some of the most common mistakes discussed in the webinar include:
- Holding too much wealth in one stock
- Allowing lifestyle expenses to rise with income
- Investing in complex products simply because they appear sophisticated
- Failing to increase liability protection as net worth grows
- Neglecting estate planning
- Spending inherited wealth too quickly
- Failing to consider estate and gift tax exposure
Building wealth is only one part of financial planning. Once you have accumulated meaningful assets, risk management, diversification, tax planning, and estate planning become increasingly important.
Mistake #1: Holding Too Much of Your Wealth in One Stock
A concentrated stock position occurs when one individual investment represents a disproportionately large percentage of your overall portfolio.
This can happen for several reasons.
You may have received:
- Restricted stock units (RSUs)
- Employer stock
- Stock options
- Company shares inside a 401(k)
- Stock grants or other equity compensation
Or perhaps you simply purchased a stock years ago that performed exceptionally well.
Either way, a successful investment can eventually become one of the largest risks in your financial plan.
Why Is Employer Stock Particularly Risky?
Owning a significant amount of stock in the company that employs you can create what Jim describes in the webinar as financial "double jeopardy."
Your:
Income → depends on your employer
and your:
Investment portfolio → also depends on your employer
If the company experiences serious financial difficulties, both could potentially be affected at the same time.
That doesn't necessarily mean selling all of your employer stock. It does mean understanding how much of your financial future depends on the success of one company.
Should You Sell a Concentrated Stock Position If It Creates Capital Gains?
Taxes are one reason investors sometimes hesitate to diversify.
If a stock has appreciated substantially, selling shares may trigger capital gains taxes.
But taxes should not be considered in isolation.
The more important question may be:
How much financial risk am I taking by continuing to hold this position?
A financial advisor can help evaluate the investment risk, potential tax consequences, and possible strategies for gradually reducing a concentrated position.
Diversification Can Help Reduce Single-Company Risk
Diversification means spreading your investments across different companies, industries, asset classes, investment styles, and geographic regions.
Rather than relying heavily on the success of a handful of companies, diversified portfolios may use investments such as:
- Mutual funds
- Exchange-traded funds (ETFs)
- U.S. stocks
- International investments
- Large and smaller companies
- Growth-oriented companies
- Income-oriented companies
- Bonds and other asset classes when appropriate
Diversification does not eliminate investment risk or guarantee a profit.
It can, however, reduce the amount of your financial future that depends on the performance of any one investment.
Mistake #2: Letting Lifestyle Creep Consume Your Raises
What happens when your income increases?
For many households, spending increases right along with it.
This is commonly called lifestyle creep.
You earn more, so you upgrade the house. Buy a different vehicle. Travel more. Eat out more frequently. Add subscriptions. Spend a little more here and there.
Individually, those decisions may seem insignificant.
Collectively, they can absorb much of your increasing income.
How Can You Prevent Lifestyle Creep?
One strategy discussed in the webinar is to increase savings whenever your income increases.
For example, if you receive a 4% raise, you might consider directing part of the increase toward your lifestyle and another portion toward retirement or investment savings.
Automatic percentage-based 401(k) contributions can also help because the dollar amount contributed generally increases as your salary rises.
The objective isn't necessarily to avoid enjoying your money.
It's to prevent your lifestyle from expanding so rapidly that your ability to build and preserve wealth fails to keep pace.
Mistake #3: Thinking Wealthy Investors Need Complicated Investments
As people accumulate more money, they are often introduced to investment opportunities that sound increasingly sophisticated.
You may hear about:
- Hedge funds
- Venture capital
- Private credit
- Alternative investments
- Tax shelters
- Cryptocurrency
- Private investment opportunities
Some of these investments may have an appropriate role in certain financial situations.
But wealth alone doesn't make an investment appropriate.
Do Millionaires Need Alternative Investments?
Not necessarily.
An investment shouldn't be selected simply because it appears exclusive or because other wealthy investors own it.
Complex investments can introduce additional considerations, including:
- Higher expenses
- Limited liquidity
- Greater complexity
- Different tax treatment
- Greater difficulty determining an investment's value
- Risks that may not be immediately obvious
Before investing, understand exactly what you own, how you make money, how you could lose money, what it costs, and how easily you can access your investment.
If you can't clearly explain how an investment works, additional research and professional guidance may be appropriate before committing your money.
Beware of Investments That Sound Too Good to Be True
The webinar includes an example of an investment opportunity promising unusually high and consistent returns.
For a period of time, investors received statements indicating that everything was going according to plan.
When investors eventually attempted to withdraw their money, however, they discovered the investment was not what they believed it to be.
The lesson is important regardless of your net worth:
An impressive return doesn't eliminate investment risk—and promises of unusually high or guaranteed returns should warrant additional scrutiny.
Financial success can sometimes make investors targets for increasingly complicated investment pitches.
Due diligence remains essential.
Mistake #4: Becoming Wealthier Without Increasing Your Liability Protection
As your assets grow, the financial consequences of a lawsuit or liability claim can become more significant.
Yet insurance coverage doesn't always keep pace with net worth.
One form of protection discussed in the webinar is umbrella liability insurance.
What Is Umbrella Insurance?
Umbrella insurance is additional personal liability coverage designed to provide protection beyond the liability limits of certain underlying insurance policies.
For someone with substantial assets, an umbrella policy may provide an additional layer of protection if a large liability claim exceeds the limits of the underlying policy.
Coverage varies considerably, so insurance needs and policy terms should be reviewed with a qualified insurance professional.
Should Business Owners and Real Estate Investors Consider Additional Asset Protection?
Business owners and real estate investors may have additional liability considerations.
Depending on the circumstances, legal structures such as an:
- LLC
- Corporation
- Other appropriate business entity
may help separate certain business liabilities from personal assets.
Real estate investors who own multiple properties may also want to discuss appropriate ownership structures with their attorney and tax professional.
Entity selection and asset protection can involve significant legal and tax considerations, so the appropriate structure depends on your individual circumstances.
Mistake #5: Having Significant Wealth but No Estate Plan
One of the most important topics addressed in the webinar is also one of the easiest to postpone:
Estate planning.
People often understand that they should have an estate plan but continue putting it off.
As your financial life becomes more complex, however, determining what happens to your assets—and who can make decisions if you cannot—becomes increasingly important.
What Documents Should Be Included in an Estate Plan?
Depending on your circumstances, a comprehensive estate plan may include documents such as:
- A trust
- A will
- A financial power of attorney
- A healthcare power of attorney
Beneficiary designations on retirement accounts, insurance policies, and other financial accounts can also play an important role.
A will alone may not control the distribution of every asset you own.
That's why estate planning should generally be coordinated across legal documents, account ownership, beneficiary designations, trusts, and your overall financial plan.
Why Does Funding a Trust Matter?
Creating a trust is not necessarily the end of the estate-planning process.
Assets may need to be properly titled or coordinated with the trust for the estate plan to operate as intended.
This is sometimes referred to as funding the trust.
An estate planning attorney and financial advisor can work together to help identify financial accounts and other assets that should be reviewed after estate documents are completed.
Mistake #6: Treating an Inheritance Like Free Money
Receiving an inheritance can significantly change someone's financial situation almost overnight.
Unfortunately, sudden wealth can also disappear surprisingly quickly.
The webinar discusses how heirs may begin spending inherited money because they view it differently from wealth they accumulated themselves.
A large inheritance can quickly become:
- A new house
- Vehicles
- Vacations
- Gifts to family
- Debt repayment
- Lifestyle upgrades
- Unplanned purchases
Eventually, what looked like a life-changing amount of money may no longer provide long-term financial security.
What Should You Do After Receiving a Large Inheritance?
Before making major financial decisions, consider developing a plan for the money.
That plan might address:
- Taxes associated with inherited assets
- Existing debt
- Emergency reserves
- Retirement goals
- Investment strategy
- Appropriate spending
- Estate planning
- Charitable intentions
- Family gifts
Rather than asking, "What can I buy with this inheritance?"
consider asking:
"What could this inheritance allow me to accomplish over the rest of my life?"
Can a Trust Help Protect an Inheritance for Future Generations?
For families concerned about how beneficiaries may handle inherited wealth, certain trust structures can provide additional control over how and when assets are distributed.
One example mentioned in the webinar is a spendthrift trust.
Trust provisions can potentially help protect assets and establish rules governing distributions to beneficiaries.
Because trust design involves legal and tax considerations, these strategies should be developed with a qualified estate-planning attorney.
Mistake #7: Ignoring Estate and Gift Tax Planning
As net worth rises, taxes can become an increasingly important component of estate planning.
Federal and state rules may apply differently depending on:
- The size of your estate
- Where you live
- What types of property you own
- Where property is located
- Who inherits the assets
- Lifetime gifts
- Trust structures
- Charitable planning
Does Illinois Have an Estate Tax?
Yes.
Illinois imposes its own estate tax and uses a $4 million exclusion threshold. This threshold is substantially different from the federal estate-tax exclusion, meaning an estate could potentially face Illinois estate tax even when no federal estate tax is due.
Illinois residents approaching this level of net worth should consider discussing estate-tax planning with their financial, tax, and legal professionals.
How Much Can You Give Someone Without Using Your Federal Lifetime Gift-Tax Exemption?
For 2026, the federal annual gift-tax exclusion is $19,000 per recipient, per donor, for qualifying present-interest gifts.
That means an individual may generally make qualifying gifts of up to the annual exclusion amount to multiple recipients without those gifts reducing the donor's lifetime federal gift and estate-tax exemption.
Gift-tax rules contain important exceptions and reporting requirements, so larger gifting strategies should be coordinated with a tax or estate-planning professional.
Estate Planning Strategies for Higher-Net-Worth Families
Depending on your financial situation and objectives, planning may involve strategies such as:
- Lifetime gifting
- Charitable giving
- Irrevocable trusts
- Credit shelter trusts
- Beneficiary planning
- Trust planning
- Coordinating asset ownership
- Reviewing the state in which you establish residency
These are not one-size-fits-all strategies.
The objective is to understand which planning opportunities apply to your estate, your family, and your goals.
Becoming a Millionaire Changes the Questions You Should Be Asking
Before reaching significant wealth, the financial question is often:
"How do I accumulate enough?"
After reaching that point, the questions begin to change:
How much risk am I taking?
Is my portfolio properly diversified?
Am I protecting my assets?
Am I saving enough to support my lifestyle?
Is my estate plan complete?
Are my beneficiaries prepared to inherit these assets?
Could taxes unnecessarily reduce what reaches my family?
Accumulating wealth is an accomplishment.
Creating a coordinated financial plan can help ensure that the decisions surrounding that wealth remain aligned with what you want it to accomplish.
Watch the Full Webinar
Want to hear the complete discussion?
In "You're a Millionaire. Congratulations. Now Avoid These Common Millionaire Mistakes," Jim Hendricks, CFP® discusses investment concentration, lifestyle creep, insurance, estate planning, inherited wealth, taxes, and several other considerations for high-net-worth households.
Frequently Asked Questions
What is the biggest financial mistake millionaires make?
There isn't one mistake that applies to everyone, but common problems include excessive concentration in one investment, lifestyle creep, inadequate liability protection, incomplete estate planning, and failing to coordinate investment and tax decisions.
How much of my portfolio should be invested in one stock?
There is no single percentage appropriate for every investor. In the webinar, Jim discusses 10% as a general concentration threshold worth examining and often prefers substantially less exposure to an individual company. Your appropriate allocation depends on your financial situation, taxes, risk tolerance, and other assets.
Should I sell company stock if I have a large capital gain?
Not automatically. The decision should consider both the potential tax cost of selling and the investment risk associated with continuing to hold a concentrated position. A gradual diversification strategy may sometimes be appropriate.
Do wealthy investors need hedge funds or alternative investments?
No. Having a high net worth does not automatically mean you need complex investments. Any investment should have a clearly defined purpose within your financial plan, and you should understand its risks, expenses, liquidity, and potential return before investing.
Does a millionaire need umbrella insurance?
Someone with substantial assets may want to review whether existing liability insurance provides sufficient protection. Umbrella liability coverage can potentially provide additional protection above certain underlying policy limits. An insurance professional can evaluate appropriate coverage.
Does having a will mean I have a complete estate plan?
Not necessarily. Depending on your circumstances, an estate plan may also include trusts, financial and healthcare powers of attorney, beneficiary designations, and proper ownership or titling of assets.
Does Illinois have an inheritance tax?
Illinois does not currently impose an inheritance tax, but it does impose an estate tax. Illinois' estate-tax exclusion threshold is $4 million. Estate and inheritance tax laws vary significantly by state.
How can I keep my children from spending an inheritance too quickly?
Trust planning may allow families to establish guidelines governing how and when inherited assets are distributed. The appropriate strategy depends on the beneficiaries, assets, family circumstances, and estate-planning objectives.
What should I do when my net worth reaches $1 million?
Consider reviewing your entire financial plan rather than focusing only on investment performance. That review may include portfolio diversification, retirement projections, taxes, liability coverage, estate documents, beneficiary designations, cash flow, and long-term family goals.
About Hendricks Wealth & Estate Management
At Hendricks Wealth & Estate Management, we help individuals and families coordinate the different pieces of their financial lives—including retirement planning, investment management, tax strategies, estate planning, and beneficiary planning.
Our objective is to help clients understand not only how to accumulate assets, but also how those assets can support their lifestyle, family, and long-term financial goals.
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Algonquin, IL 60102
847-428-3997
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941-308-9862
HendricksWealth.com