Financial Ruin for Beginners

Here at HumbleDollar, we spend most of our time on growing wealth. That focus leaves a blind spot: we've neglected readers who want to shrink their wealth through their investment choices. In the interest of balance, I'd like to address that gap systematically.

Let's start with the easiest set-it-and-forget-it approach, a classic one-two combo. First, find a high-fee advisor who champions high-fee funds. Give it a few years and, if all goes to plan, you should see a healthy dent in your potential net worth.

If that doesn't do the trick, step things up. Look for a manager who trades constantly. In extreme cases, encourage your current manager to churn your portfolio.

Beyond these hands-off options, we'll need to get more creative in our pursuit of wealth destruction. If all else fails, there's always social media. Create a handful of accounts and start collecting the investment tips you find there.

Then take action. A monthly schedule works well. Above all, don't waste time thinking things through, because these finfluencers have obviously done that for you.

For the truly dedicated, there's the tax angle. Hold your bonds in a taxable account, where the interest is taxed every year at your top rate. Park your highest-growth stocks in a Roth IRA, where, sadly, the tax savings would be considerable.

Then, when retirement arrives, don't give withdrawals a second thought. Drain the accounts in whatever order springs to mind, ignore your tax bracket, and let required minimum distributions land on you as a surprise. Done right, you can turn a modest tax bill into a spectacular one.

Next, always buy last year's top-performing fund. Better still, buy whatever dominated the headlines this week. By the time you arrive, the party is usually over, and the fund obliges by regressing to the mean. If you're unsure which fund to pick, choose the one with the glossiest advertising.

Timing matters too. Sell after a big drop, to spare yourself further pain, then wait on the sidelines until you feel confident again, which typically happens after prices have recovered. Repeat as often as necessary, and you'll lock in losses on the way down while missing the gains on the way back up.

Be sure to skip the safety net. An emergency fund is the enemy of wealth destruction. Without one, a car repair or a job loss forces you to sell investments at the worst possible moment, ideally in the middle of a bear market. It's a rare opportunity to be your own worst timing mechanism.

Diversification, meanwhile, is for the faint of heart. Put a large share of your net worth in your employer's stock, or in a single company you're sure will be the next big thing. This works especially well if your paycheck depends on the same company, so one bad quarter damages your income and your portfolio at the same time.

For a grand finale, buy something you can't explain. Layered annuities, products with surrender charges and commissions that rival a used car, anything whose brochure uses the phrase "proprietary strategy." If you can't describe how it works, you can be fairly sure the seller is the one who benefits.

I hope this goes some way to closing HumbleDollar's blind spot on wealth destruction. Good luck with the journey, and enjoy feasting on noodles along the way. You can also pat yourself on the back for doing your part to reduce wealth inequality.

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