Residents in Florida often face financial planning challenges that are more pronounced than in many other parts of the U.S.  Here are the five mistakes that tend to have the largest long-term financial impact:

#1- Becoming “house rich, cash poor”

The Florida real estate market, especially coastal luxury properties, encourage buyers to stretch their budgets. Many households devote too much of their net worth to either their primary residence or to their portfolio of investment property.

Common issues include:

• Large mortgages with limited emergency savings
• Significant home equity but insufficient liquid investments
• Underestimating maintenance, insurance, HOA fees, and property taxes

Better approach: We think that including real estate in your portfolio can be a beneficial tool to diversify your investments.  However, it is important to maintain adequate liquidity.

#2- Assuming Florida’s lack of state income tax solves their tax problems

Many new Florida residents believe moving there dramatically reduces their tax burden. While it is true that Florida has no state income tax or estate tax, high-income professionals and business owners still face Federal income taxes, capital gains taxes, Federal estate taxes, various business-related taxes, and potential tax from poorly managed investment sale activity.

Especially for physicians, attorneys, executives, and business owners, sophisticated tax planning can often produce more value than simply moving states.

Better approach: Focus on proactive and on-going tax planning, not just tax preparation.  If you only look at a snapshot once per year, you miss the opportunities that can be uncovered by looking at a longer period of time.

 

#3- Failing to prepare for hurricane and insurance risk

Florida residents, especially transplants, often underestimate how quickly and significantly a natural disaster can create financial hardship.

Some common shortcomings we see are inadequate homeowners coverage, insufficient flood insurance, lack of umbrella liability policy, and not enough emergency savings.  We are also surprised by how many Florida residents have had the same coverage for more than a decade and haven’t reevaluated their policies.  Regardless of where you stand on climate change, the latest research points to an increase in the severity of natural disasters, and it is important that Florida residents take this into account.

Better approach: Conduct an annual insurance and risk management review alongside your financial plan.

#4- Investing too conservatively…or too aggressively

Florida attracts many entrepreneurs and real estate investors, which can lead to one of two extremes:

• Holding excessive cash because of economic uncertainty
• Concentrating too much wealth in:
  • Local real estate
  • A privately owned business
  • A handful of stocks
  • Cryptocurrency

Both approaches can hinder long-term wealth accumulation.

Better approach: Build a diversified portfolio aligned with your goals, time horizon, and risk tolerance rather than chasing trends or relying on one asset class.

#5- Delaying comprehensive financial planning after income increases

Many Florida professionals experience substantial income growth.  Physicians, attorneys, finance professionals, entrepreneurs, and executives can all experience rapid income increases during their careers.  All too often we see that lifestyle expenses will rise just as quickly.

This can result in:

• Minimal retirement savings relative to income
• Poor cash flow management
• No estate planning
• Little asset protection
• Missed tax-saving opportunities

High income alone does not guarantee financial independence.

Better approach: Coordinate investment management, tax planning, retirement planning, estate planning, insurance, and cash flow into a cohesive and unified strategy.

 

How Floridians Can Avoid These Pitfalls

For Florida residents, we feel that the best outcomes are produced by active investment management, improved tax efficiency, a balanced risk-adjusted portfolio, adequate insurance to meet your needs, regular spending analysis to guard against lifestyle inflation, and a coordinated financial plan to tie everything together.

At Altfest we have more than 40 years of experience guiding high-income professionals and physicians.  We manage more than $2 billion dollars for our clients and ensure that their financial plans are custom designed with their unique needs in mind.  We believe that consistent thoughtful financial planning has measurable long-term impact.

 

Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.