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The Step-Up In Cost Basis And The Estate Tax Threshold

Imagine spending your life building wealth, investing in real estate, stocks, or your business, with the hope of leaving a legacy for your children. Then one day, you find yourself wondering: Will the government take a massive chunk of it anyway?

If your estate is well above the federal estate tax exemption threshold — $30 million for a married couple in 2026 under the OBBBA — you might be asking a very legitimate question:

“What’s the point of the step-up in basis if my estate still owes millions in estate taxes?”

Conversely, if your estate is well below the federal estate tax exemption threshold, you might also ask the more common question:

“What’s the benefit of the step-up in basis if I won’t be paying the death tax anyway?”

Because I’m not dead yet, I haven’t been focused too much on the estate tax owed upon death. However, like any good pre-mortem planner who thinks in two timelines, it’s important to clarify the confusion and plan accordingly.

Let’s walk through how it all actually works. I’ll explain it with three examples, so you’ll walk away understanding why the step-up in basis still matters and why estate tax planning becomes critical the wealthier you get.

The Basics: Step-Up in Basis vs Estate Tax

The key to understanding how the step-up in basis helps, regardless of your estate’s value is knowing there are two completely different taxes in play when someone dies:

1. Estate Tax – a tax on the total value of your assets at death, if your estate exceeds the federal exemption. This tax is paid by the estate.

2. Capital Gains Tax – a tax on the appreciation of assets, but only if those assets are sold. This tax is paid by your heirs.

When someone dies, their heirs get a step-up in cost basis on inherited assets. That means the asset’s cost basis is reset to the fair market value (FMV) on the date of death. The capital gains from the decedent’s lifetime are essentially wiped out.

If you’re looking for a financial reason to hold onto your stocks, real estate, and other assets indefinitely, the step-up in cost basis is a compelling one. Instead of selling your assets, do what billionaires do, and borrow against them.

I used to think it was wasteful for investors to never sell and enjoy a better life along the way. But it turns out, never selling might be the greatest gift you could leave your adult children.

Step-up In Basis vs Estate Tax Example 1: A $50 Million House

To help us better understand how the step-up in basis and the estate tax threshold works, I want to use an extreme example. Thinking in extremes helps you understand anything better.

Let’s say you and your spouse own a single house worth $50 million. You bought it decades ago for $1 million, and it’s now your primary residence. You both pass away, and your two children inherit the property.

Capital Gains Tax:

Normally, if your children sold that house with a $49 million gain, they’d owe capital gains tax — around 20% federal plus 3.8% net investment income tax. That’s over $11 million in taxes.

But because of the step-up in basis, the cost basis resets to $50 million. If they sell the house for $50 million the day after your death, they owe zero capital gains tax. Hooray for a tax-free generational wealth transfer—just for having the good fortune of being born to a rich bank of mom and dad!

Well, not quite.

Estate Tax:

But you’re not off the hook entirely. Because your estate is worth $50 million (you have no other assets but the $50 million house) and the federal estate tax exemption for a married couple is $27.98 million in 2025, the taxable estate is $22.02 million.

At a 40% tax rate, that’s a $8.8 million estate tax bill. Ouch.

And here’s the key point: the estate tax comes first. It has to be paid before the heirs get the property — and it’s paid out of the estate itself.

So the executor (perhaps your children) either:

Have to sell part or all of the house to pay the estate tax, or
Use other liquid assets in the estate (if any) or borrow against the house
Borrow Against the Property (Estate Takes Out a Loan)
Use Life Insurance (Irrevocable life insurance trusts)
File a 6-month extension with the IRS and ask to pay in installments

If you know you have a large, illiquid estate, you must plan ahead to figure out how to pay the estate tax.

So What’s the Point of the Step-Up?

At first glance, this seems discouraging. You still owe tax, so what did the step-up even save you?

Here’s the thing: Without the step-up, the tax bill is much worse.

Imagine the same scenario, but there was no step-up in basis. The kids inherit your $50M house with a $1M cost basis. Now the total taxes owed are:

• Estate tax: $8.8 million

• Capital gains tax (if they sell): 23.8% of $49 million = ~$11.7 million

Total tax: $20.5 million

That’s 40% of the value of the estate gone to the government. With the step-up in basis, that total tax burden drops to just the $8.8 million estate tax from $20.5 million.

In other words, the step-up in cost basis prevents double taxation. It doesn’t make estate tax go away — but it shields your heirs from also having to pay capital gains tax on the same appreciated value.

Step-up In Basis vs Estate Tax Example 2: A $40 Million Stock Portfolio

Let’s say your net worth is in tech stocks you bought in the early 2000s. Maybe you got into Amazon at $50 a share or invested in a portfolio of private AI companies. Your portfolio’s now worth $40 million, and your cost basis is only $2 million.

When you pass away:

Your heirs receive the stock at a stepped-up basis of $40 million

If they sell right away, they owe no capital gains tax

But if your total estate (including other assets) exceeds the exemption, they’ll still face estate tax on the amount over the threshold

Let’s say your estate is $45 million, and you’re married. With a $25 million exemption at the time of death, the taxable estate is $20 million, equaling an estate tax of $8 million.

Again, the step-up doesn’t save you from the estate tax, but it saves your heirs from owing capital gains tax on $38 million in gains, which would have been another $9 million or so.

Step-Up in Basis Example 3: A $4 Million Rental Property

Let’s say you bought a rental property 30 years ago for $400,000. Over time, its value has appreciated to $4 million, and it’s now fully paid off. You have no mortgage, and your total estate—including this property, some retirement savings, and other assets—is worth $5 million.

Since the federal estate tax exemption for an individual is $13.99 million in 2025 (or $27.98 million for a married couple), your estate is well below the taxable threshold. That means no estate tax is due—your heirs get everything without the estate owing a penny to the IRS.

But here’s where the step-up in basis makes a massive difference:

Capital Gains Tax Without the Step-Up:

If you gifted the property to your child while alive, they’d inherit your original $400,000 basis, not the $4 million fair market value. If they later sold it for $4 million, they’d owe capital gains tax on $3.6 million of gains — likely over $850,000 in taxes, depending on their income and state.

On the other hand, if you hold the property until your death, then your heirs get a step-up in basis to the fair market value on your date of death — in this case, $4 million. If they sell right away, no capital gains tax is due.

So ironically, doing nothing and holding onto the property until death is often the most tax-efficient strategy. So perhaps your boomer parents aren’t so greedy after all for not helping you more while alive.

Capital Gains Tax With the Step-Up:

But if you hold the property until death, the basis is stepped up to the $4 million fair market value. Your heirs can then sell it for $4 million the day after inheriting it and owe zero capital gains tax.

Who Pays What Tax?

Estate tax is paid by the estate, if owed, before assets are distributed.
Capital gains tax is only paid by the heirs if they sell the asset and only if there’s a gain beyond the stepped-up basis.

In this third example, because the estate is below the exemption limit and your heirs sell right after inheriting, neither the estate nor the heirs pay any tax. Hooray for not being rich enough to pay even more taxes!

The Step-Up Is a Gift — But It’s Not a Shield

Think of the step-up in basis as a forgiveness of capital gains tax, but not a full pardon from all taxes.

You’re still subject to the estate tax if your assets exceed the exemption. But the step-up can make a huge difference in the after-tax inheritance your children receive.

For high-net-worth families, the step-up is essential to prevent what could otherwise become a 60%+ combined tax burden.

Even if you don’t expect your estate to be large enough to trigger estate tax, the step-up in basis can still save your heirs hundreds of thousands to millions of dollars in capital gains taxes.

The step-up is one of the most powerful estate planning tools available — and a compelling reason to hold onto appreciated assets until death, especially if your goal is to maximize what you pass on.

Actions You Can Take To Reduce Your Estate Tax

If your estate is well above the federal exemption — especially if most of your wealth is tied up in a single asset like a business, property, or concentrated stock position — you need to plan ahead. Some strategies include:

1. Grantor Retained Annuity Trust (GRAT)

Move appreciating assets out of your estate into trusts, like a Grantor Retained Annuity Trust (GRAT) or Intentionally Defective Grantor Trust (IDGT). These remove future appreciation from your taxable estate.

Example: Put $1M of rapidly appreciating assets (like stocks or real estate) into a short-term, 2-year GRAT. You get annuity payments back, and the future appreciation passes to heirs gift-tax free.

Transfer $2M into a 2-year GRAT
Receive $1M/year back in annuities
Asset appreciates 8% annually
After 2 years, excess growth goes to heirs estate-tax free

A Revocable Living Trust Doesn’t Reduce Your Taxes

For those wondering whether putting your assets in a revocable living trust can help you save on estate taxes or capital gains taxes — it doesn’t. A revocable living trust is primarily a tool for avoiding probate, maintaining privacy, and streamlining the distribution of your assets after death.

While it does ensure your heirs receive the step-up in basis on appreciated assets (since the trust is still considered part of your estate), it does not reduce your estate’s value for estate tax purposes. The IRS treats assets in a revocable trust as if you still own them outright.

In other words, the trust helps with logistics and efficiency — not with reducing your tax bill. If your goal is to lower your estate taxes, you’ll need to explore other strategies, such as lifetime gifting, irrevocable trusts, or charitable giving, which actually remove assets from your taxable estate.

2. Annual Gifting

You and your spouse can give up to $19,000 (2025) per person, per year to anyone without reducing your lifetime exemption. The annual gift limit tends to go up every year to account for inflation.

Example: you and your spouse have 2 children and 4 grandchildren. That’s 6 people × $19,000 × 2 spouses = $228,000/year.

Over 10 years:

$228,000 × 10 = $2.28 million removed from your estate

These gifts also shift appreciation out of your estate, compounding the benefit

If your estate is well below the estate tax exemption amount, annual gifting won’t make a difference for estate tax reduction purposes. You’ve just decided to help your children or others now, rather than after you’re dead.

Further, you’re free to give more than the gift tax limit a year if you wish. Technically, you’re supposed to file Form 709 if you do, but I don’t think it matters if you’re way below the estate tax threshold.

3. Charitable Giving

Donating part of your estate to a charity can reduce your taxable estate and support causes you care about. Charitable remainder trusts can provide income for you and a benefit for your heirs, while reducing the tax burden.

Example: You set up a Donor Advised Fund and donate $100,000 a year to your children’s private school for 10 years. Not only do you help your school, you reduce your taxable estate by $1,000,000 and get a board seat. In turn, your children get a leg up in getting into the best high school and colleges.

4. Buy Life Insurance in an ILIT

Life insurance held inside an Irrevocable Life Insurance Trust (ILIT) can provide your heirs with liquidity to pay estate taxes — without the proceeds being taxed as part of your estate.

Example: Buy a $3 million life insurance policy inside an ILIT. The trust owns the policy and receives the payout tax-free when you die.

That $3 million death benefit can be used by your heirs to pay estate taxes, so they don’t have to sell assets.

Pro: Provides tax-free liquidity.

Con: You must give up control of the policy (but can fund premiums via gifting).

5. Charitable Remainder Trust (CRT)

Place appreciated assets into a CRT. You receive income for life, and when you die, the remainder goes to charity. You get a partial estate tax deduction now.

Example:

Donate $5M appreciated stock
You receive $200K/year income
Get a charitable deduction today (~$1.5–2M)
Avoid capital gains on sale of stock inside the trust
Reduces taxable estate by $5M

Pro: Gives you income, avoids capital gains, helps charity

Con: Your heirs don’t receive the donated asset

6. Family Limited Partnership (FLP)

Put assets into an FLP and gift minority interests to family members. Because these interests lack control and marketability, the IRS allows you to discount their value by 20–35%.

Example:

Move $20M into an FLP
Gift 40% interest to heirs
With a 30% discount, value is reported as $5.6M, not $8M
Reduces reported estate value significantly

Pro: Keeps control while reducing taxable estate

Con: IRS scrutinizes discounts — must be done carefully

7. Relocate To A Lower Tax State Or Country

Finally, you may want to consider relocating to a state with no state estate or inheritance tax before you die. There are over 30 such states. If you can successfully establish residency, your estate—and ultimately your heirs—could save millions of dollars in taxes.

Now, if you’re a multi-millionaire thinking about moving to another country to avoid estate taxes, keep in mind: there’s no escaping the federal estate tax if your estate exceeds the exemption threshold. Even if you’ve lived abroad for decades, as long as you’re a U.S. citizen, your entire worldwide estate remains subject to U.S. federal estate tax upon your death.

However, if you officially renounce your U.S. citizenship, the rules change. You’ll no longer owe U.S. estate tax on non-U.S. assets—only on U.S.-situs assets like real estate and U.S. stocks. But there’s a catch: if your net worth exceeds $2 million, or if you can’t certify five years of U.S. tax compliance, you’ll be classified as a “covered expatriate” and may be subject to an exit tax under IRC Section 877A.

This exit tax treats all your worldwide assets as if they were sold the day before you renounce, taxing any unrealized gains above a certain exemption.

Final Thoughts: The Step-Up in Basis Helps A Lot

If your estate is under the federal exemption, the step-up in basis remains a powerful tool that lets your heirs inherit appreciated assets tax-free. By holding onto your wealth until death, your heirs receive a stepped-up cost basis and can avoid capital gains taxes if they sell. In contrast, if you gift appreciated assets during your lifetime, the recipient inherits your original cost basis, potentially triggering significant capital gains taxes upon sale.

Once your estate exceeds the exemption threshold, the federal estate tax kicks in. Without proper planning, your heirs may even be forced to sell valuable assets just to cover the tax bill. The step-up helps, but it’s not a substitute for a thoughtful estate plan. Strategies like GRATs, ILITs, and charitable trusts can dramatically reduce or even eliminate your estate tax liability, but only if you start planning early.

Also keep in mind: not all assets get a step-up in basis. Pre-tax retirement accounts like IRAs and 401(k)s don’t qualify. Instead, your heirs will owe ordinary income tax when they withdraw the money—not capital gains.

Your best move? Talk to an experienced estate planning attorney. We have, and it made a world of difference for our peace of mind. The step-up may save your heirs from one tax, but the IRS is still waiting with another.

Readers, are you now less upset about your wealthy parents holding onto their assets instead of gifting them to you while they’re still alive—thanks to the step-up in cost basis? Does it make more sense for more of us to hold onto appreciated assets until death and borrow against them if needed, rather than sell and trigger capital gains taxes?

Free Financial Analysis Offer From Empower

If you have over $100,000 in investable assets—whether in savings, taxable accounts, 401(k)s, or IRAs—you can get a free financial check-up from an Empower financial professional by signing up here. It’s a no-obligation way to have a seasoned expert, who builds and analyzes portfolios for a living, review your finances.

A fresh set of eyes could uncover hidden fees, inefficient allocations, or opportunities to optimize—giving you greater clarity and confidence in your financial plan.

The statement is provided to you by Financial Samurai (“Promoter”) who has entered into a written referral agreement with Empower Advisory Group, LLC (“EAG”). Click here to learn more.

Diversify Your Retirement Investments

Stocks and bonds are classic staples for retirement investing. However, I also suggest diversifying into real estate—an investment that combines the income stability of bonds with greater upside potential.

Consider Fundrise, a platform that allows you to 100% passively invest in residential and industrial real estate. With over $3 billion in private real estate assets under management, Fundrise focuses on properties in the Sunbelt region, where valuations are lower, and yields tend to be higher. As the Federal Reserve embarks on a multi-year interest rate cut cycle, real estate demand is poised to grow in the coming years.

In addition, you can invest in Fundrise Venture if you want exposure to private AI companies like OpenAI, Anthropic, Anduril, and Databricks. AI is set to revolutionize the labor market, eliminate jobs, and significantly boost productivity. We’re still in the early stages of the AI revolution, and I want to ensure I have enough exposure—not just for myself, but for my children’s future as well.

Fundrise investment amount by Financial Samurai, Sam Dogen. New $112,000 investment on June 20, 2025

I’ve personally invested over $400,000 with Fundrise, and they’ve been a trusted partner and long-time sponsor of Financial Samurai. With a $10 investment minimum, diversifying your portfolio has never been easier.

To increase your chances of achieving financial independence, join 60,000+ readers and subscribe to my free Financial Samurai newsletter here. Financial Samurai began in 2009 and is the leading independently-owned personal finance site today. Everything is written based off firsthand experience.

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The Most Common Tax Planning Mistakes For High Earners

If my posts on the mistake of chasing value stocks or the need to invest big money to make life-changing money don’t resonate, consider hiring a financial professional to manage your portfolio. You may not be obsessed enough to consistently invest the amount needed to retire comfortably. Offloading the burden of investing frees up your time and energy to focus on work, family, and hobbies.

At this moment, I’m preparing to do my taxes again. Every year I file an extension (Oct 15 deadline) because of delayed K-1s from private fund investments. So when Empower reached out about highlighting tax planning mistakes for high earners, I agreed. It’s a topic I know all too well.

What I didn’t realize is that Empower offers tax planning as part of its standard client service. No extra invoices, no $300/hour CPA bills. Just integrated advice, included in the management fee. Considering that taxes are often the single largest expense for high-income earners, having proactive strategy baked in is a big deal.

The Importance Of Tax Planning For High Income Earners

When you’re a high earner—think $250,000+ income or the potential to get there—you’ve probably got a lot on your plate: investments, real estate, maybe a business or two. What you might not be paying enough attention to? Tax planning.

It’s not sexy like a moonshot AI stock, but the compounding effect of smart, consistent tax moves can rival investment returns over time. As Empower Personal Wealth specialist Scott Hipp, CPA, CFP® explains, for high-income, high-net-worth clients, tax planning isn’t about chasing one-off loopholes, it’s about proactive, coordinated, year-round strategy.

Let’s dive into four key questions Scott answered that reveal just how much value smart tax planning can deliver. If you’re searching for a financial professional to manage your wealth, choosing one that integrates tax planning into their service is essential, not an add-on.

Empower has been a long-time affiliate partner of Financial Samurai, and I personally consulted for Personal Capital (later acquired by Empower) from 2013 to 2015. I’ve seen firsthand how incorporating tax strategy into wealth management can meaningfully boost long-term returns.

1. Why is tax planning critical for high earners?

When you’re in the top federal tax brackets—32%, 35%, or 37%—every strategic move counts more. Saving 1% on taxes for someone making $100K is nice. Saving 1% for someone making $800,000? That’s four first-class tickets to Hawaii with a couple thousand left over.

Scott says most people think of tax planning as a once-a-year scramble or a hunt for magical loopholes (“I heard Uncle Bob pays zero taxes because he made his dogs employees…”). The truth: the biggest gains come from small, consistent, legal moves year after year.

It’s like The Shawshank Redemption: pressure and time. Maxing out a health savings account, backdoor Roth contributions, charitable “bunching,” and tax-loss harvesting may seem minor in isolation, but over 20 years, they can carve a serious tunnel toward financial freedom.

Here’s the danger: by the time you file in April, most opportunities are gone. If you’re filing 2025’s taxes in April 2026, your deadline for most strategies was December 31, 2025. That’s why Empower’s team works year-round—advisors and tax specialists meet regularly to tweak and optimize before the clock runs out.

2. What’s the deal with the SALT deduction changes?

The State and Local Tax (SALT) deduction cap got a temporary boost after the passage of The One Big Beautiful Bill Act on July 4, 2025. It’s $40,000 in 2025 (up from $10,000), rising slightly each year until 2029, before reverting in 2030.

Who benefits? Mostly taxpayers with AGI under $500K in high-tax states. Hit $600K AGI, and the expanded cap phases out completely.

But even high earners over $600K aren’t out of luck—if you own a pass-through business (S-corp, partnership, LLC taxed as such), you might use the Pass-Through Entity Tax (PTET) workaround. Here, the business pays state taxes, making them fully deductible federally, and you get a state tax credit. As of 2025, 35+ states have a PTET option.

For the right clients, SALT changes + PTET can unlock deductions worth tens of thousands—money that stays in your portfolio instead of the IRS’s coffers.

3. How does Empower approach complex high-earner situations?

Let’s say you’re a business owner with significant investment income, passive rental income, and real estate holdings.

With Empower, you basically have a “tax specialist on demand” baked into your fee – no surprise bills. The process starts with:

Reviewing the past three years of returns for missed opportunities. (You’ve got three years to amend and claim a refund.) Empower can spot thousands in overlooked deductions.
Holistic planning based on your goals. Tax strategy isn’t in a vacuum—it’s tied to your investment plan, estate goals, and cash flow needs.

Common missed opportunities for self-employed clients:

Not deducting health insurance premiums.
Missing the Qualified Business Income (QBI) deduction.
Ignoring home office deductions.

More common errors Empower can help catch:

Capital loss carryforwards lost when switching preparers/software
Incorrect Backdoor Roth processing
Missed Foreign Tax Credit
Wrong cost basis for stock sales (ESPP, options)
HSA distributions taxed in error

From there, Empower looks forward—maybe setting up a solo 401(k), timing income, or planning capital gains. The idea is to create an ongoing tax playbook, not just fix past mistakes.

4. What real-world tax savings have clients seen?

Missed health insurance deductions are surprisingly common—and costly.

S-Corp owner: CPA added health insurance premiums to W-2 wages (correctly) but never told the client they could deduct those premiums above the line. Amending three years’ returns saved ~$6,000 in federal taxes.
Sole proprietor: Deducted health insurance as a Schedule A itemized deduction, but couldn’t benefit due to medical expense thresholds and not itemizing at all. Amending saved ~$7,500.
Medicare premiums: Many don’t know they qualify as self-employed health insurance deductions. Catching this can save $1,000+ per year.

These aren’t flashy hedge-fund-like wins—but they’re guaranteed returns via tax savings, often compounding over years.

Key Strategies Empower Uses for High Earners

Scott shared a few proactive moves that come up again and again:

Bunching Charitable Contributions

Standard deduction in 2025: $15,750 (single) / $31,500 (married). By combining two or more years of donations into one tax year, you can exceed the standard deduction, itemize that year, and take the standard deduction the next—resulting in a bigger total deduction over time.

Bonus: Donate appreciated assets or use a Donor-Advised Fund for even more efficiency.

Tax Loss Harvesting

Selling investments at a loss to offset gains elsewhere—then reinvesting in similar (but not “substantially identical”) assets—can lower your current-year tax bill while keeping your portfolio allocated. All Empower Personal Strategy clients ($100K+) minimize your tax burden with proactive application of tax-loss harvesting and tax location.

Roth Conversions

Moving funds from a traditional IRA to a Roth IRA lets you lock in today’s tax rate if you expect to be in a higher bracket later. Future withdrawals? Tax-free. This is especially powerful in lower-income years before RMDs kick in.

Saving Money On A Good CPA

A good CPA might charge $150–$400/hour just for tax consultations. Meanwhile, many don’t offer proactive planning at all, focusing instead on compliance and filing.

Empower builds tax planning into its overall wealth management service for clients with $100K+ in investable assets. That means:

One fee, one integrated plan.
Advisors and tax specialists in the same room (or Zoom) all year.
Proactive calls before the deadlines—not “we’ll see you next April.”

The Bottom Line

Big investment wins get the headlines, but year after year, quiet, boring, proactive tax moves can be worth just as much, sometimes more. For high earners, ignoring tax planning is like leaving compounding on the table.

If you’ve got $100K+ in investable assets, Empower is offering Financial Samurai readers a free consultation. Even if you’re confident in your current plan, a second opinion could uncover thousands in missed opportunities.

For a limited time only, book your free, no obligation session here. An Empower professional will review your investments and net worth, and offer some suggestions on where you can optimize, all for free.

Empower’s Tax Optimization Services

Tax optimized investing (tax loss harvesting, tax location, tax efficiency): available to clients investing $100K+.

Tax planning guidance (analysis and recommendations – identify gaps and opportunities in your tax strategy before you file with your advisor and tax specialist): available to $250K+.

At $1M+, clients receive the above, in addition to access to a CPA, at no additional cost.

Disclosure: This statement is provided by Kansei Incorporated (“Promoter”), which has a referral agreement with Empower Advisory Group, LLC (“EAG”). Learn more here.

To expedite your journey to financial freedom, join over 60,000 others and subscribe to the free Financial Samurai newsletter. Financial Samurai is the leading independently-owned personal finance site today, established in 2009.

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How To Eliminate That Intense Financial FOMO You’re Feeling

Back in 2012, I thought I had finally conquered financial FOMO after walking away from a well-paying finance job. But after having children, I’ve noticed more and more relapses. If you’ve found yourself battling the desire for more money than you truly need, this post is for you.

Ever since returning to San Francisco from our 36-day trip to Honolulu, I’ve been feeling a greater sense of FOMO. The first week back hit especially hard when Figma IPOed and surged 333% on its first day. Suddenly, we were right back to frenzied markets, with retail investors piling in at sky-high prices.

In Honolulu, my focus was on mainly three things: 1) family, 2) exercise, and 3) remodeling my parents’ in-law unit. Those three priorities consumed all my bandwidth. Between supercommuting and construction, I was spent most days, with little time left to think about chasing investments.

Pickleball and then the beach were my escape. While waiting for the next game, conversations revolved around recapping rallies, kids, or which store sold the best Pirie mangoes. Careers and investments never came up, except when I asked a couple players about Honolulu’s cost of living. The vibe was refreshingly present, grounded, and calm.

The Return Back Was Somewhat Jolting

I had never taken my family on such a long trip before, so the contrast with life back home was especially clear.

With just the four of us at home, family logistics became simpler, familiar camps smoothed out childcare every other week, and the remodeling burden was finally lifted. With all that mental headspace freed up, my mind inevitably drifted back to the markets and to the unsettling realization that the AI boom was racing ahead without me.

On the pickleball courts here, the chatter couldn’t have been more different. Nearly everyone was talking about tech stocks, the bull market, and the next big AI play. Why? Because nearly everyone either works in tech or invests heavily in it. There was no escaping the mania. I found myself longing for the calmer rhythm of Honolulu again.

The Moment That Reduced My FOMO Tremendously

Then something unexpected happened that broke my financial FOMO fever. The first weekend back home, I went to a neighborhood gathering at a local park. Familiar faces were everywhere, including one dad I occasionally hang out with. He works in venture, so I asked whether he ever felt the same financial FOMO I’d been struggling with since returning.

He shrugged. “Kinda, but not really.” Why would he? He spends his days looking for the next big winner, so opportunities are always flowing across his desk. Though he did mention once passing on a company that went on to be a huge success.

That surprised me. If anyone should feel FOMO, it’s investors who had the chance and said no, far worse than never getting a look at all, which is the reality for most of us. If I never had the opportunity, then there was no missing out in the first place. But it also made sense he didn’t feel much financial FOMO since he was already immersed in the hunt for more.

We kept chatting. He asked how my summer had been, so I shared some stories from our time away. Naturally, I asked about his summer too, expecting to hear about some big trip since his family had traveled a lot before. But instead, he told me they hadn’t gone anywhere. He’d been too busy working. Two months into summer, and he was still grinding away.

That was my “ah hah” moment. Suddenly, my financial FOMO evaporated. Here was someone, at least twice as wealthy as me, stuck at home because of work. It reminded me of my banking days, when I had to ask for permission to take vacation—like a kid asking his parents for pocket money. What a crock!

I’m sure his hard work this summer will make him millions more. But he’s already rich. At our age, I don’t want to sacrifice too much time with my kids for incremental wealth that won’t materially change our lifestyle. 18 summers isn’t a lot. I’ve got enough passive income to cover our family’s basic needs. That freedom, I was reminded, is worth more than chasing the next big score.

The Six Steps To Reducing Your Intense FOMO

Financial FOMO comes from comparison, insecurity about our own progress, and the fear of missing a once-in-a-lifetime opportunity. It tends to peak during bull markets, when it feels like everyone else is getting rich except you.

I’m not sure anybody is truly immune to financial FOMO. You can be wealthy, financially independent, retired, or even work in venture capital, and still feel it. But FOMO left unchecked can push you into bad investment decisions, such as buying at peaks, overextending on margin, or constantly second-guessing yourself.

Here are six tactical yet practical steps that may help you manage FOMO better:

1) Build a Core Portfolio You Rarely Touch

One of the best ways to combat FOMO is to remind yourself that you already own a piece of the future. If you’re invested in equities, real estate, Bitcoin, or venture, you’re covered. Even holding something as simple as the S&P 500 means you’re participating in the ongoing growth of our economy. The exact mix of your asset allocation is up to you. What matters most is having a stake in assets that can carry you forward, so you don’t feel pressured to chase every hot new opportunity.

I keep the bulk of my public equity investments in broad index funds. Meanwhile, about 40% of my net worth in real estate, and 15% in private companies.With a solid core, it becomes much easier to tune out the noise and ignore the hype cycles.

For example, if AI truly sparks a wave of IPOs, new startups, and thousands of newly minted millionaires, at least my San Francisco real estate should benefit. I recently experienced a rental bidding war for one of my properties and that’s before the AI IPO wave has even arrived. Investing in the picks and shovels helps ensure you will financially benefit, no matter what.

2) Allocate a “FOMO Fund”

Instead of trying to suppress the urge to participate, give yourself permission, but with guardrails. Roughly 40% of my public equities are in individual growth names, mostly tech. This way, when I see headlines about breakthroughs, like quantum computing, I feel like I’m part of the story rather than left on the sidelines. Of course, during the next correction, I will also lose more than the average index fund investor too.

I’ve also carved out a dedicated “FOMO Fund”—about 5% of my overall portfolio—for speculative money. That’s where I can dabble in individual private companies, new venture funds, or even short-term trends. If it pays off, great. If not, it won’t derail my financial plan. By containing the risk, you scratch the itch while protecting your long-term wealth.

3) Systematize Your Investing With Automation

One reason FOMO hits so hard is because investing often feels optional and emotional. A simple antidote: automation. Dollar-cost averaging into index funds, ETFs, individual stocks, or funds removes the decision-making stress. When money flows into the market on a schedule, you don’t sit around debating whether to chase the next hot stock. Instead, you’re already steadily invested, no matter what the headlines say.

For example, after opening a new personal Innovation Fund account earmarked for my kids with $26,000 ($500 bonus if you invest over $25,000), I enrolled in auto-invest at $2,500 a month. It’s enough out of my cash flow to feel involved without feeling strain. One year later, that’s $30,000 invested; after 10 years, $300,000.

Without automation, it’s easy to fall off track because life gets busy. I have over 30 investment accounts to manage between the four of us. Inevitably, I’m going to miss something, which is why automation is so important to free up mental bandwidth.

I’m concerned my kids may have little chance of becoming financially independent on their own in an AI-driven, hyper-competitive world. Therefore, every dollar I automate for them helps reduce that concern, while ensuring their money is working even if I get distracted.

Make investment contributions automatic through monthly auto-investing to help you reduce financial FOMO

4) Use Opportunity Cost as a Filter

Before jumping on the next hot idea, I try to ask: What am I giving up if I do this? Am I sacrificing cash flow, peace of mind, or time with family? Am I risking capital I’ll need in five years for housing, education, or flexibility? During bear markets, I certainly get a little more moody. By forcing yourself to weigh trade-offs, you realize some FOMO-driven decisions don’t actually pass the test. I

As someone who enjoys investing more than spending, this opportunity cost exercise often flips for me. I tend to think instead: What is the opportunity cost of spending money on something I don’t really need versus the potential returns if I invested it? Buying this unnecessary $120,000 Range Rover could turn into $300,000 in five years if invested well!

Still, the reality is that not all investments work out, especially the most speculative ones. Corrections and bear markets are a natural part of investing. Which is why it’s worth asking a different version of the question too: What are the joys I’m giving up today in exchange for an investment that may never pan out? That balance helps keep you grounded, whether you lean toward spending or investing.

Losing Money Quickly

Just look at the Figma IPO. I suspect FOMO drove many investors to pile in on day one, paying $100–$133 a share. Fast forward just a few weeks, and the stock is already down about 40% from its peak. I would much rather have spent $25,000 on a memorable family vacation than invested it in Figma and watched $10,000 vanish in two weeks. YOLO!

Chasing hot IPOs at extraordinary valuations is dangerous, so please be careful. Instead, consider investing in these companies before they go IPO so you can sell to investors who experience maximum FOMO.

Always remind yourself that you can and will lose money when it comes to investing in risk assets. Sometimes, this fact is easy to forget during a bull market.

How to reduce financial FOMO and not chase hot IPO stocks like Figma

5) Define “Enough” Clearly

FOMO often creeps in when you don’t have a clear baseline for what success actually means to you. If your target is always a vague “more,” then no matter how much progress you make, someone else will always appear to be ahead – whether it’s their bigger house, higher net worth, or latest hot investment. That mindset makes contentment impossible.

What helps is defining enough. For me, that’s when passive income reliably covers our family’s basic living expenses. Once that box is checked, every dollar beyond is truly optional. I can put it toward growth investments, donate it, or try to spend it guilt-free on experiences.

After I hit a passive income target, I try and shift my mindset back toward an early retirement lifestyle. This means less striving, more enjoying. Anchoring to “enough” quiets the noise, and reminds me that I’ve already got enough.

Once you know your number and can sustain your lifestyle, you realize chasing endlessly isn’t freedom, it’s another form of bondage.

6) Change Your Environment

Finally, FOMO isn’t just about the markets, it’s about the people around you. Living in go-getter cities like San Francisco or New York means you’re constantly surrounded by the most ambitious and competitive people. Many of whom are making big money in tech, finance, or startups. The conversations, the headlines, even the birthday gatherings, it all feeds into a sense that you’re in this constant battle where you’re often falling behind.

One way to dial that back is to physically change your environment. Moving to, or even spending extended time in, a slower-paced city or town gives you space to breathe. Suddenly, not everyone is talking about the latest IPO or AI fundraise. Conversations shift to family, community, or quality of life.

It doesn’t mean giving up ambition or opportunity, you can still build wealth anywhere. But by lowering the ambient noise of competition, you reduce the constant comparison game that fuels financial FOMO.

Final Thoughts On Getting Rid Of FOMO

Markets will always swing from euphoria to despair, and there will always be someone making more money than you. But with a sound core portfolio, a small space to take punts, and a clear definition of enough, you can stay disciplined while still scratching the investing itch.

FOMO doesn’t disappear, but with the right systems, it can be managed so it doesn’t manage you.

Readers, do you experience financial FOMO? If not, how do you manage it so you don’t feel like you’re constantly missing out on financial gains? Interestingly, the vast majority of people I speak with in real life say they don’t really struggle with financial FOMO. That makes me curious — what strategies do you use to tame this beast?

Invest in AI So You Don’t Get Left Behind

AI is set to disrupt the labor market in a massive way, for you and for your kids. One way to hedge against that disruption is to invest in AI itself.

With Fundrise’s venture capital product, you can gain exposure to leading private AI companies like OpenAI, Anthropic, Databricks, Anduril, and more. The minimum investment is just $10, and new accounts currently get a $100–$200 bonus.

I recently opened a new account for my children with $26,000 and will auto-invest $2,500 a month for the foreseeable future. My hope is that by riding the AI wave, they’ll benefit from the very disruption that might otherwise work against them.

Fundrise is a long-time sponsor of Financial Samurai, and Financial Samurai is an investor in Fundrise products. Our investment philosophies are aligned. Overall, I’ve invested more than $350,000 in Fundrise Venture.

Fundrise Innovation Fund Financial Samurai investment amount and dashboard - Overcoming FOMO in AI by investing in AI — My current Fundrise Venture investment dashboard, excluding the $26,000 I recently invested for my children

Pick up a copy of my USA TODAY national bestseller, Millionaire Milestones: Simple Steps to Seven Figures. I’ve distilled over 30 years of financial experience to help you build more wealth than 94% of the population and break free sooner. When you’re ahead, that FOMO starts to disappear.

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