1. Avoid the three destroyers of wealth.
There are three major “destroyers” of wealth, says Gupta, and they are alarmingly simple: Fees, taxes, and emotional decisions.
“Intuitively, without emotions being involved, you could say that when things are down, I buy more,” he explained. “When things are up, I sell.” Unfortunately, he acknowledges most people aren’t set up to be good investors.
At Gupta’s firm, investors can minimize the toll of taxes by diversifying their portfolios with real estate investments. “When you own real estate, you’re leveraging inflation,” he said. “The majority of the income you’d receive is sheltered from taxes because you’re benefiting from depreciation.”
2. Don’t put everything into your business. It could fail.
Entrepreneurs are already taking on an inordinate amount of risk, so Gupta advises against putting all your equity into a new startup. “One of the biggest mistakes entrepreneurs make is they put everything into their business,” Gupta said. “Pay yourself first.”
3. Pick a solid, cheap 401(k) plan.
Gupta emphasized the importance of picking a low-cost 401(k) plan for your employees — especially since business owners are the fiduciaries of those plans.
Unfortunately, the majority of 401(k) plans are extremely expensive, so it’s important to identify the low-cost funds first.
Gupta is particularly impressed by Vanguard’s 401(k) tool. At his firm, he chose America’s Best 401(k.)
4. Once the money comes in, don’t make any impulsive decisions.
Entrepreneurs who’ve sold companies for millions (or even billions) are often tempted to reinvest their earnings elsewhere. Still, it’s important not to take on too much too quickly.
“Take a step back, and sit down with a fiduciary again,” says Gupta.
If it’s a substantial amount of wealth, he suggests dividing it into two buckets: Your operating budget for the rest of your life, and the bucket where you put a “100-year” plan together.
5. If possible, keep it hush-hush.
Of course, Gupta acknowledges that entrepreneurs are typically “lifelong” business owners who are eager to lend funds to friends when they can — or, often to start new companies. Still, he says it’s a good idea to keep your wealth under the radar for some time.
“In this day and age, people will find out,” he concedes. “But if you don’t tell anyone, less people will come asking you for money.”
by Ajay Gupta