Three Moves Family Offices Should Avoid

Family offices have always had a unique advantage in the world of investing. With capital flexibility, a long-term perspective, and the ability to move quickly, they can access opportunities that traditional investors cannot. Yet in today’s market, even the most sophisticated offices face a set of challenges that, if not carefully managed, can undermine both capital and legacy.

With rising interest rates, shifting market dynamics, and global uncertainty, some strategies that worked just a few years ago are now considerably more risky. Understanding which moves to avoid can be just as important as knowing where to invest.

Here are three of the most dangerous missteps a family office could make in today’s environment and guidance on how to navigate them.

1. Over-Leveraging in a Rising Rate Environment

Debt can be a powerful tool when used wisely, but in the current climate, over-leveraging is a serious hazard. Many family offices are tempted to increase exposure through borrowed capital, whether it’s to acquire commercial real estate, participate in private equity, or pursue opportunistic funds.

Rising interest rates mean that debt service costs are significantly higher than they were a few years ago. Projects that might have been profitable under lower rates could suddenly struggle to generate sufficient cash flow. Additionally, refinancing risk has increased, as lenders are more cautious and rates remain elevated.

Over-leveraging also reduces flexibility. A highly leveraged portfolio leaves little room to pivot if market conditions change or a tenant defaults. In some cases, it can even force the sale of key assets at unfavorable prices just to cover obligations.

Strategic advice: Prioritize investments with manageable leverage and consider structures that provide flexibility in repayment. Maintaining liquidity reserves ensures that unexpected expenses or market shifts do not derail long-term plans. Even when opportunities seem compelling, caution with debt preserves optionality and reduces the risk of losses that could impact multiple generations.

2. Chasing Yield Without Understanding Risk

Another common pitfall is pursuing high-yield opportunities without fully examining underlying risks. In the current environment, attractive returns are tempting, but many come with hidden vulnerabilities.

This may include distressed office buildings in oversupplied markets, multifamily projects with unverified tenant demand, or funds and startups that lack a proven track record. In these situations, the headline yield can disappear quickly if fundamentals are not solid. Illiquid investments, by their nature, can tie up capital for years, leaving a family office unable to respond to unexpected needs or better opportunities.

High-yield chasing can also affect reputation and long-term capital preservation. One poorly performing investment can have outsized consequences, not only financially but in terms of trust and credibility with partners or advisors.

Strategic advice: Approach yield with discipline. Conduct rigorous due diligence on sponsors, tenants, and local markets. Stress-test assumptions and focus on quality over speed or headline returns. By prioritizing investments that balance risk and reward, family offices protect their capital while remaining positioned to capitalize on long-term growth.

3. Ignoring Liquidity and Flexibility

Even family offices with significant capital can face challenges if liquidity is neglected. Locking up resources in illiquid assets without a clear exit plan creates risk, especially in volatile markets.

Illiquid investments may include development projects, private funds, or alternative assets that cannot be easily converted to cash. While these can generate attractive returns over time, they can leave a family office exposed when unexpected expenses arise or new opportunities present themselves. Forced sales during a market downturn can result in realized losses and disrupt carefully planned strategies.

Ignoring liquidity can also compound other risks. Without flexible access to capital, a family office may struggle to respond if leverage becomes burdensome or if other positions underperform. Flexibility allows leadership to make strategic adjustments without sacrificing portfolio integrity or long-term goals.

Strategic advice: Maintain a meaningful portion of assets in liquid or semi-liquid positions. Establish exit options where possible and create structures that allow capital to be redeployed efficiently. Preserving flexibility ensures that the office can respond to challenges, pivot as opportunities arise, and maintain stability across market cycles.

Putting It All Together

The common thread in these pitfalls is the tension between opportunity and risk. Over-leveraging, chasing yield without proper analysis, and ignoring liquidity are all strategies that can undermine stability, even for family offices with substantial capital. The key is balancing ambition with prudence.

Discipline, transparency, and careful planning remain essential. Family offices that carefully stress-test assumptions, diversify across sectors and structures, and maintain sufficient reserves are far more likely to withstand market volatility. This approach does not eliminate risk, but it manages it intelligently.

The current environment rewards those who are thoughtful rather than reactive. By avoiding these three major mistakes, family offices can preserve capital, protect legacies, and maintain the flexibility needed to take advantage of opportunities as they arise.

The Takeaway

For family offices, the stakes are high. Every investment carries the potential to enhance or erode both wealth and legacy. In today’s market, avoiding over-leverage, conducting rigorous due diligence before chasing yield, and maintaining liquidity and flexibility are not just best practices, they are essential strategies for survival and growth.

Investments that look good on paper but ignore these principles can quickly become liabilities. Those that balance prudence with strategic insight are the ones that will carry family offices successfully into the future.