A mistake with money is not uncommon for most people to make over the course of their lives. The average person could put their money into a bad investment or rack up credit card debt. Billionaires, on the other hand, have financial mishaps that can cost them millions of dollars if deals go south.
Typically, the richest 1% can recover over time, as well as make future mistakes with their money. However, these kinds of errors are likely ones that the average person doesn’t have the luxury to make.
Here’s a look at some financial mistakes billionaires can afford to make that the average person may not.
Financial health can be hard to keep up if you don’t know what you are doing and don’t have extra money to hire help. Billionaires are able to employ attorneys, managers and partners to ensure that their wealth is protected and any errors are fixed.
If the average person is trying to manage investments, portfolios, stocks, crypto, businesses, real estate or basically anything outside the realm of cash, mistakes are likely to be made along the way. If those are severe, the average person may have a harder time recovering.
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If you are a billionaire, you have some money to spare, and if you end up losing some in a venture that went south, that’s okay because you can bounce back. If the average middle-class person put all of their finances into one basket that tanks, they might not recover.
“For a huge venture capital firm, they assume 80% or 90% of their investments will go bust. But maybe one or two will become the next Facebook or Google. They can afford to take those risks for the big returns,” explained Matthew Weinschenk, CFA, director of research at Stansberry Research, a MarketWise brand.
Oftentimes, billionaires make their money by striking it big in one area of investing, funneling their wealth into that solo venture to grow it and expand their wealth. After all, it takes reinvestment in a company over and over to get them to that coveted 10-figure mark.
That’s not to say it can’t fall apart. Most people who aren’t billionaires typically lack a safety net of liquidity and access to significant cash savings, and they could have a hard time rebuilding a line of credit if they do not diversify their investments. Should that one non-diversified gamble not pay off, that could bankrupt the average person.