When it comes to preserving wealth, invert the problem

It’s not a leap for most people to understand that wealth preservation requires a different set of skills and mindset than wealth creation. But while that’s easy enough to understand on an intuitive level, in my experience it’s much harder to execute in practice. 

Old habits die hard. Entrepreneurs often tend to treat their investment portfolios similar to their operating businesses, focusing on opportunities, upside, and how much money they can make on a venture. They spend less time worrying about downside risk, or all of the things that can go wrong. 

In fact, in order to preserve what you’ve worked so hard to build, you need to do the opposite. Protecting from loss should be a priority. 

Right hand man of Warren Buffett, brilliant investor, and modern philosopher Charlie Munger talks about the principle of inversion. The idea is encompassed by his quote “All I want to know is where I’m going to die so I’ll never go there.”

So think about the best way to lose all of your wealth.

Spend beyond your means in order to keep up with your new social circles. 

Get divorced.

Purchase many assets that depreciate or are expensive to maintain. How about some sports cars, a yacht, and a few horses?

Fly first class everywhere. If commercial flight times aren’t convenient for your schedule, charter a private jet (after all, time is money).

Take up gambling as a hobby.  Drinking as well, since you can now enjoy the really good stuff. Maybe dabble in drugs if you’re so inclined.

Make a big bet on at least one investment that has a pretty decent chance of going to zero. 

Make investments you don’t understand managed by people you’re not sure you trust.

Hand out money to all friends and family who ask for it. Don’t worry too much about the terms on which you invest in their new startup venture, because you trust them. Things will probably work out fine.

Avoiding all of this seems so simple. But why do so many people so consistently fall into these traps?

What’s a good way to preserve wealth?

Not doing any of these things is a good start.