The Mistakes Rich People Make

Paul Karger, managing partner at TwinFocus overseeing $12 billion in assets, has identified recurring mistakes among the ultra-wealthy based on two decades of experience. Those new to significant wealth—particularly business owners who experience sudden windfalls—often stumble early due to unfamiliarity with sophisticated financial management.

Wealthy clients frequently accumulate too many expensive homes in remote locations that sit vacant and become unproductive, depreciating assets. These properties typically languish on the market for years, making them costly to maintain. Karger recommends owning only a primary residence and one vacation home used frequently, then renting additional properties.

Lifestyle inflation presents another challenge. The more people earn, the more they spend on household staff, private jets, and luxury items. As Karger’s mother warned: “It’s easy to go up and it’s hard to come down." Reducing spending later creates both financial and marital stress.

Private investments carry significant risks, with many early-stage ventures sitting on balance sheets for 10-20 years without returns while adding tax reporting costs. Investors should only commit to illiquid opportunities with exceptionally high conviction, as they can only control investment size, not outcomes.

Estate planning failures stem from reluctance to transfer assets too early. While earlier transfers allow assets to appreciate outside the taxable estate, individuals must balance this against maintaining sufficient liquidity for their own needs—requiring sophisticated modeling with professional advisors. Critical administrative details must be executed properly to avoid IRS scrutiny.

The solution is proactive planning with a fiduciary advisor whose incentives align with the client’s interests. Even successful wealth creators often need expert guidance to manage their fortunes effectively.