The Biggest Money Mistakes I See

By Brett Gottlieb

Try as we might, it’s impossible to live a life without mistakes. If you’re lucky, the mistake is minor and provides an opportunity to grow. Financial mistakes, on the other hand, almost always cause some pain, and they can have potentially devastating effects down the line.

As an advisor with 13 years of experience and over two decades in the financial industry, I have worked with many clients over the years. Even though each client is different and their situations are unique, I’ve found that everyone has made financial mistakes at one point or another, often without even realizing it. I strive to provide my clients with the tools and resources to be better prepared for the future by avoiding financial pitfalls. Here are 6 common financial mistakes I’ve seen over the years and how you can help prevent them from wreaking havoc on your financial future.

1.   Trying to Time the Market

Even though we have lived through a truly historic and unusual time in the last three years, the basic principles of the market still hold true. First and foremost: timing the market doesn’t work. There is no way to predict short-term fluctuations with enough accuracy that you can consistently make the right decision about when to buy and when to sell.

It’s normal to feel worried when you see your investment values fall during uncertain times, but one of the biggest mistakes you can make is to sell your investments entirely. When you do this, you’re locking in the low value of your accounts instead of letting them rebound before you withdraw. Remember, your investments may lose market value, but you don’t lose any money immediately unless you sell while the value is low. As much as possible, don’t let your emotions get in the way when making decisions about buying and selling investments.

Historically, though it has had many ups and downs, the market has always rebounded over time. That’s why it’s so important to trust the market and let time be your ally when growing your investments.

All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

2. Not Having a Tax-Efficient Income Plan

Another common mistake I see is not understanding the impact of taxes on your retirement income plan. Most people focus on what they need to do to make it to a comfortable retirement and often forget that is only one half of the equation. Your income plan during retirement will also play a major role in how long your money will last.

A well-developed retirement plan should include both guaranteed income, such as a pension or Social Security, and investment income, such as real estate or income from your retirement account.

Once you know where your money is coming from, you will need to think about the timing of retirement withdrawals. For instance, you can start withdrawing Social Security at age 62; however, if you delay taking benefits until you are 70, your benefit amount will increase. Assets like 401(k) plans, Roth IRAs, annuities, and taxable brokerage accounts are each taxed differently, and your overall tax bill can be reduced by timing withdrawals from each income source in a tax-efficient way.

Investing involves risk, including the potential loss of principal. Any references to guaranteed generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 

Our firm is not affiliated with the U.S. government or any governmental agency.

3. Believing That Financial Planners Are Too Expensive

Many clients delay using a financial planner because they believe, erroneously, that financial planners are too expensive. There are financial planners for every budget, and you don’t need to spend a ton of money to get your finances in order. Additionally, it is important to think of your financial planning expense as a long-term investment. Any expense that you pay out today implementing healthy financial habits is going to potentially pay out dividends in the long run.

Similarly, I’ve seen many people over the years who misunderstand how fees are actually charged and it can lead many prospective clients to avoid the industry altogether. The nitty-gritty details of fees often vary based on the firm and the individual advisor, but all advisors are required to disclose their fee structures and answer any and all questions you may have. Don’t avoid professional guidance because you have unanswered questions. Instead, find an advisor you feel comfortable with and who explains their fee structure in a way you can understand.

4. Loaning Money to Friends and Family

Loaning money to friends and family may sound like a noble deed, but it can wreak havoc on your finances if you’re not careful. Some clients may loan money as a way to get a better investment return when the markets are down, but they often do not realize the risks associated with this type of financial strategy.

On one hand, you risk losing the entire loaned amount if you lend to a friend who isn’t in a position to pay you back, or if you do not execute the loan with a written document. This could cause damage not only to your financial plan but also to your relationship with that individual. Additionally, depending on the interest rate you charge, you could be subject to imputed interest rules if it is below the market rate at the time of the loan.^[1]

5. Overusing Alternative Investments

Another common mistake I see is relying on alternative investments too much and subsequently taking on too much risk. As alternative investments have exploded in popularity over recent years, many people find themselves bored with traditional stocks, bonds, mutual funds, and ETFs. They find themselves chasing returns in other investments like real estate investment trusts, private placements, oil drilling, personal lending, and options.

These investment strategies do have merit and have a place in some portfolios, but they are often much riskier than traditional assets and should not be your sole focus. The truth is investing should be boring! That means it’s safer and it’s better to be safer with the majority of your assets than to risk them and potentially take a substantial loss, take a huge loss just before retirement, greatly devalue your retirement accounts, etc.

6. Not Consolidating Accounts

How many investment accounts do you have in your household? Three? Five? Or maybe even 10? Whether they accumulated over the years from previous employers or you opened them for yourself, it’s not uncommon to have multiple unmanaged accounts. And while clients probably don’t give much thought to them right now, multiple accounts could cause some serious headaches down the road. Navigating various investment decisions, fee breakdowns, and distribution rules for each account can be difficult and confusing—not to mention costly.

Having your assets split into many investment accounts can eat into your long-term income stream by causing larger tax liabilities and excessive fees.

A great benefit of account consolidation is the ability to clearly see all of your gains and losses in real time. This will make it easier to utilize strategies like tax loss harvesting, where you can sell an investment at a loss to offset the gains of another investment and reduce your tax liability.

For retirement accounts, consolidation can make your life easier come tax season since you won’t have to worry about calculating your required minimum distributions and tax liability across multiple accounts, each with their own contribution and withdrawal strategies. Consolidation also helps to avoid excessive management fees, which are usually charged on a per-account basis.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 

Do these mistakes sound familiar? Do you want to learn more about a safer retirement plan? 

If some of these mistakes sound familiar, you are not alone. We have helped many clients overcome these obstacles and more. At Comprehensive Advisor, we will address all these issues through our comprehensive planning process, helping you to de-stress and focus on what really matters. If you would like to learn more, email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to get started today.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

With a combined experience of over three decades in the financial services industry, our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory services offered only by duly registered individuals through AE Wealth Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc. generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 1346645 – 6/22

^[1] https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHp