By Michael Henley, CFP®, CPWA®, CRPC®, RMA®
Quick Look: 7 Mistakes That Drain Multimillion-Dollar Portfolios
- Lack of Coordination Among Members of Your Financial Team
- Mismanagement of Required Minimum Distributions (RMDs)
- Not Diversifying Your Windfalls
- Overfunding or Underfunding 529 Plans
- Putting Your Investments in the Wrong Types of Accounts
- Not Exploring Roth Conversion Planning
- Acting on Emotion During Market Volatility
Managing your portfolio is an ongoing process. Some factors, like external market forces, are out of your control. However, countless families lose money to portfolio mistakes they’re not even aware they’re making.
1. Lack of Coordination Among Members of Your Financial Team
Many affluent families work with a team of professionals. It is not uncommon for a family to have a wealth advisor, an estate planning attorney, and a CPA. All too often, each member of the group is working in isolation, and this approach almost always leads to missed opportunities.
For example, a CPA may recommend a large charitable contribution for tax reasons without consulting the financial advisor, missing the chance to use appreciated stock instead of cash, which could have created additional tax benefits. Or an estate attorney may draft a trust that holds investment accounts but neglects to coordinate with the advisor on how the assets should be titled, leading to probate issues or beneficiary inconsistencies.
2. Mismanagement of Required Minimum Distributions (RMDs)
Failing to consider your RMDs when crafting your retirement plan is often one of the most damaging multimillion-dollar portfolio mistakes. RMDs are taxed as ordinary income, which can push retirees into higher tax brackets. Additionally, large distributions can increase Medicare premiums (IRMAA) and taxes on Social Security benefits. Proactive planning can help smooth out income and lower lifetime taxes.
3. Not Diversifying Your Windfalls
Many families accumulate concentrated stock positions over time, often through employer compensation such as restricted stock units (RSUs), stock options, or employee stock purchase plans. This is especially common among high earners at companies like FMC Corporation, where long-term employees may receive equity awards year after year.
Holding a large portion of your wealth in one company’s stock can expose you to significant risk. If that stock declines, the impact on your portfolio may be far more damaging than expected, particularly if other areas of your financial life (like income and benefits) are also tied to the same employer.
For example, imagine an FMC employee who has spent 20 years climbing the corporate ladder. Over that time, they have built up a multimillion-dollar stake in FMC stock through incentive plans. While the position has grown over time, it now makes up more than half of their total investment portfolio. If the stock were to experience a 30% drop due to company-specific or sector-wide issues, the overall hit to their net worth could be substantial, potentially affecting retirement plans or future financial flexibility.
Developing a plan to gradually diversify concentrated positions can help reduce the potential downside of a single-stock decline. It doesn’t mean abandoning the stock entirely. It means building more balance into the broader portfolio.
4. Overfunding or Underfunding 529 Plans
Putting money toward a 529 plan can help you save for your children’s college while also offering you tax advantages. However, when it comes to funding the plan, you need to strike a delicate balance. Overfunding or underfunding 529 plans can both harm your portfolio over time:
- When you overfund, you tie up money that could be more efficiently invested somewhere else.
- When you underfund, you miss out on tax-free growth and potential state tax deductions.
Both are common mistakes. A more effective approach is to fund your 529 Plan with a clear understanding of projected education costs, family goals, and potential tax benefits. This helps reduce the risk of overcommitting assets that could be used more flexibly elsewhere, or underfunding and missing out on years of tax-free growth.
5. Putting Your Investments in the Wrong Types of Accounts
Asset location strategy matters, and many families are unwittingly putting their investments in the wrong types of accounts. Consider this example: two retirees have identical portfolios, 50% stocks and 50% bonds, and the same total wealth. One investor spreads the mix evenly across their taxable brokerage account, pre-tax IRA, and Roth IRA. The other investor places slower-growing, tax-inefficient assets like bonds inside the IRA (where gains are taxed later at ordinary income rates) and growth-oriented assets like stocks in the Roth IRA (where gains grow tax-free). Despite having the same investments and risk level, this second approach often leads to meaningfully higher after-tax wealth over time. That’s because where you hold your investments can be just as important as what you hold.
6. Not Exploring Roth Conversion Planning
One planning opportunity often overlooked is the use of Roth conversions during years when your income is temporarily lower, such as early retirement, after a business sale, or during a sabbatical. These years can present a window to convert traditional IRA assets to a Roth IRA while staying within a relatively low tax bracket. In market downturns, this strategy can become even more effective: converting when portfolio values are temporarily depressed allows more future growth to occur inside the Roth, where it is not subject to future income taxes. While the decision to convert should always be made in coordination with a qualified financial advisor, recognizing these “valley years” for what they are, planning opportunities rather than setbacks, can have a lasting impact on long-term after-tax wealth.
7. Acting on Emotion During Market Volatility
For families with multimillion-dollar portfolios, emotional decision-making during market downturns can be one of the most costly mistakes to make. When markets decline sharply, the natural human instinct is often to “do something,” even when that something may damage long-term wealth.
Consider Liberation Day on April 2, 2025, when President Trump’s sweeping tariff announcement sent the S&P 500 plummeting 12% in just seven days. Imagine a family with a $5 million portfolio that panicked and moved to cash when their account value dropped to $4.4 million. While this decision provided temporary psychological relief, it also locked in a $600,000 loss. Over the following weeks, markets recovered as investors realized the economic impact was more manageable than initially feared. The family that stayed invested would have participated in what became one of the biggest eight-day gains for the S&P 500 since November 2020, while the family that sold during the Liberation Day volatility missed the recovery entirely.
Developing a clear investment philosophy and sticking to it during turbulent times can help guard against these emotionally driven portfolio mistakes. Having a trusted advisor who can provide perspective during volatile periods often makes the difference between preserving wealth and inadvertently destroying it.
Strengthen Your Financial Foundation
If you recognize yourself in one or more of the mistakes outlined above, you’re not alone. Managing significant wealth brings complexity, and even small missteps can quietly compound over time. The good news? There is always an opportunity to adjust, refine, and make smarter decisions going forward.
At Brandywine Oak Private Wealth, we specialize in helping affluent families identify blind spots, reduce tax drag, and bring clarity to complex financial lives. Whether you are looking to correct past missteps or take a more proactive approach, we’re here to help you build a more thoughtful, tax-aware Family Wealth Plan.
To schedule a meeting, call us at (484) 785-0050, email contact@brandywineoak.com, or get started online. Curious what it’s like to work with us? Visit our client testimonials page to hear their stories.
Frequently Asked Questions to Avoid Multimillion-Dollar Portfolio Mistakes
What are some common mistakes wealthy families make with their investment accounts?
A common mistake is placing the wrong types of investments in the wrong accounts. For example, putting tax-inefficient assets like bonds in taxable brokerage accounts can lead to unnecessary tax drag. On the other hand, using tax-advantaged accounts like Roth IRAs for high-growth assets like stocks may help improve long-term after-tax outcomes. Asset location decisions can have a lasting impact on how efficiently wealth grows and is distributed.
When is it a good idea to consider a Roth conversion?
Roth conversions are often most effective in years when income is temporarily lower, such as early retirement or during a career break. These windows may allow families to shift money from traditional IRAs into Roth IRAs while staying in a lower tax bracket. When markets are down, conversions may also transfer future growth into a tax-free account at depressed values. It’s a strategy that requires careful planning and tax coordination.
How does residency affect estate and income taxes for wealthy individuals?
Residency can significantly affect both income taxes during life and inheritance taxes after death. For example, some families may choose to work in Delaware for its low income taxes, retire in Pennsylvania, where retirement income is not taxed, and then return to Delaware later in life to avoid Pennsylvania’s inheritance tax. Strategic residency planning can help families reduce tax exposure depending on their life stage and their legacy goals.
About Michael
Michael Henley is the Founder and CEO of Brandywine Oak Private Wealth, a private wealth management and registered independent advisory firm headquartered in Kennett Square, PA. Over the course of his 20-year career, Michael has been dedicated to helping wealthy individuals and families plan and manage all aspects of their finances and investments. With a passion for helping others look behind the curtain and understand the complex world of finance, he develops close relationships with clients as he helps them progress toward their financial goals. Michael loves to provide clarity and alleviate financial anxiety, help prevent families from overpaying in taxes, and give wealthy families permission to enjoy their life savings. He says, “No work is more gratifying than giving families outcomes to what matters most to them.”
Michael holds the CERTIFIED FINANCIAL PLANNER®, Certified Private Wealth Advisor®, Chartered Retirement Planning Counselor℠, and Retirement Management Advisor® designations. Residing in Chadds Ford, PA, with his two children, he enjoys outdoor activities, particularly maintaining trails on his property, hiking with his dogs, and being an actively engaged dad, always taking his kids everywhere. Michael’s latest hobby is tennis and he recently started ice skating to join his daughter Savannah. He can also be found moving logs to the firepit with his son Maverick on the tractor. Michael serves on the board of United Way of Southern Chester County and loves mentoring younger advisors. Great mentors helped him succeed, and he’s convinced that every leader needs to both have mentors and be a mentor. To learn more about Michael, connect with him on LinkedIn.
Brandywine Oak Private Wealth is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
