Let’s face it. Everybody makes mistakes. You could be the most experienced investor; the least experienced investor or the most experienced financial advisor and still make mistakes.
Obviously, we never do those things intentionally. We’ll fall on our sword if we say, “I made a mistake. Let me fix it.” That’s what we need to do. I’ll say, “So, let’s just fix it; let’s find a solution and move on from there,” and I say this because mistakes will be made in life no matter what.
Investing is An Art, Not A Science
If investing was a science it would be easy; we would have an end result. But, it is not. It is an art that we have to navigate the waters every day to prevent you from making mistakes.
#1. Having No Plan At All – If you don’t have a plan, what are you supposed to follow? We are so dependent on Google maps to get everywhere today and we used paper maps back in the day. But if you didn’t have a map at all, we’d all be cruising around aimlessly. If the plan is only in your head and nobody knows about it, it’s only a thought. If you don’t have a written plan in front of you all you are doing is trailblazing.
#2. Not Taking Advantage of Your Employer’s Retirement Plan – Whether you are not putting money in at all into a 401(k), or you are not putting enough in to meet the full match, if you’re not getting that free money – because that’s exactly what it is – it’s a huge mistake.
#3. Failing to Take Advantage of the Roth – Now, that could be the 401(k), the Roth IRA, a Roth conversion, or, for those who make too much money and with income limits, the Backdoor Roth. If your employer allows a Roth 401(k) you need to be taking advantage of that. If you make too much money to do a Roth IRA contribution on the outside, you can do the non-deductible IRA and then do a Roth conversion immediately on it. There are no limitations on the conversions like there used to be.
Let me add that I think having your money grow tax-deferred and not tax-free for many decades down the road is a huge mistake. It’s also a huge mistake not to be doing a Roth. That says to me you’re not thinking about the future. And that goes for those who are required to take minimum distributions that don’t need the money; they should be doing Roth conversions.
#4 Not Having A Will – The lack of estate planning, with no Power of Attorney and no Living Will is a massive mistake. Remember that it may not be for you while you are alive, but when you pass on, those family members, those executors, those executrixes, are going to have a colossal problem on their hands. Or, if you’re still alive and incapacitated, you won’t have a Power of Attorney or a Living Will to take care of those medical or financial decisions for you.
#5. Insurance – I am not a huge insurance guy. I actually think you can have too much insurance. But, you should have enough. Whether it’d be life insurance to take care of your family and your kids, nursing home insurance when you have a long-term care need down the road, or the big one that a lot of people don’t think about: disability insurance, you need it. I hear people say, “I’m fine. I’m young!” They don’t ever think about becoming disabled. But I think COVID-19 changed that for everybody. Disability is always put on the back burner, but it’s something everybody should be thinking about.
#6. Beneficiary Information – Many people forget to update this. If you have accounts in 401(k)s, IRAs and investments, and if you have forgotten to update your beneficiaries, whether because you got married, or divorced, lost a spouse, or whatever, many folks that forgot to update that information found out the hard way that monies were going to unintended parties or persons. And this is not just for all of your investments; it is for all of your insurances as well. It all ties into the estate planning side of the equation.
#7. Buy High, Sell Low – Everybody wants to time the market. We’re going to freak out when the market drops, but then we’re going to have euphoria when the market goes up. It’s about a lack of discipline. Don’t buy in and panic sell when it decreases in value if it’s not something you’re willing to hold for a while. Don’t try to time the markets; even in the face of a pandemic like what we all just experienced. We could have never predicted a pandemic happening and that is why you need to stay disciplined even in the worst storms.
#8. Stop Googling Your Investment Advice – I think the biggest thing in today’s market with the euphoria is: “I’m going to Google ‘What is the best meme stock today?’” And that’s because they think they have to buy that stock today because it’s going up. Or they say, “Let’s jump into crypto- currencies!” I answer at least 15 cryptocurrency questions a day. Too many people get caught up in that market buzz. They heard that someone made a million dollars and now everyone else wants to do that. Really? So then it’s not, “I’m not disciplined because I buy high and sell low,” it’s more like, “I am going to get caught up in the euphoria.”
If You Didn’t Call Kenny, You Made A Huge Mistake – This is the unofficial mistake #9.
I did a plan for a client who was a friend of mine in college. We played baseball together. He and his wife live in the Washington, D.C. area and had two kids and really good paying jobs. Life was good until, sadly, while in his late 40s he came down with Parkinson’s disease.
What helped him, his spouse, the kids, and the overall situation was the fact that they already had a financial plan in place. The kids had 529 plans and their college years were taken care of. He had disability insurance and life insurance in case something happened to him. And, they had all the directives in place for their estate planning.
We addressed all of the unknowns because the written plan was already set years ago.
So again, sure, everyone makes mistakes and, thankfully, he avoided them by not doing the things that I have outlined for you here. You can avoid them by having your accountability partner – that’s what I am – or your financial advisor or financial planner make sure that you have checked all the right boxes. They should always know the right boxes. It is worth a call and a visit to ensure that you and your loved ones are properly prepared for the unexpected.
If you feel lost along your financial journey, we’re here to help! Contact us!