Home > Podcasts > Rethink Your Money > The Top 10 Brutal Money Mistakes You May Be Making


The Top 10 Brutal Money Mistakes You May Be Making

Published on February 20, 2023

John Hagensen

Everyone makes mistakes, and we work hard to correct them when we do. But what about the money mistakes we don’t know we’re making that can cause permanent damage to our finances? Join John as he shares how to recognize these mistakes and avoid repeating them (4:17). Plus, Creative Planning Wealth Manager Adam Hoopes joins the show to dissect the SECURE Act 2.0 and the significant benefits it could offer for your retirement (9:45). And on Rethink or Reaffirm, John tells you why following the herd may get you slaughtered (39:41).

Episode Notes:

Everyone makes mistakes, and we work hard to correct them when we do. But what about the money mistakes we don’t know we’re making that can cause permanent damage to our finances? Join John as he shares how to recognize these mistakes and avoid repeating them (4:17). Plus, Creative Planning Wealth Manager Adam Hoopes joins the show to dissect the SECURE Act 2.0 and the significant benefits it could offer for your retirement (9:45). And on Rethink or Reaffirm, John tells you why following the herd may get you slaughtered (39:41).

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John Hagensen: Welcome to the Rethink Your Money podcast, presented by Creative Planning. I’m John Hagensen, and ahead on today’s show: the 10 big mistakes you may be making with your money, as well as what you need to know about the recently passed legislation, and finally, the debt ceilings impact on your investment strategies. Now join me as I help you rethink your money.

When I was back in college, I had a friend, and this friend was in a bad relationship. Do you know what I’m talking about? We’ve all had that friend where they’re in one of those relationships where there’s constant bickering. It’s just very much not a pleasant experience for anyone who has to be around that couple. I recall my friend at one point asking me for my advice, and I said what any good friend would, “Your relationship’s really toxic.” Well, they ended up staying together, and I’m pretty sure that he told her what I had said. So now it’s even more awkward because she’s like, “Oh, you don’t think I’m good for him?” To which, of course, the answer was, “No, if you guys love being completely miserable, then this is a great relationship.”

Generally speaking, if you need couples therapy a month or two into dating, it’s probably time to pivot. And you see, I think there’s a great parallel for our lives around this idea of pivoting off mistakes. Bad dating relationship, yeah, that’s one thing. Doubling down and marrying that person, there’s the decision that carries long-term consequences. This dawned on me last weekend while watching the Super Bowl. Both the Eagles and Chiefs had fantastic seasons, landing them each the number one seed in their respective conferences, by the way, the odds on favorites to get back there next year. I would argue that these organizations share one really important trait: they’re willing to admit mistakes and adjust.

Look no further than their starting quarterbacks. The Chiefs moved up on draft day to go get Patrick Mahomes, two-time Super Bowl MVP, two-time NFL MVP, five straight AFC Championship games, maybe the most talented quarterback in NFL history, probably the most decorated through five seasons, even more so than Brady, and he’s 27 years old. Well, when they made that trade to move up to get him, they had just made the playoffs and their current quarterback was a former number one pick in the entire draft out of Utah named Alex Smith. Similarly, when you look at the Eagles, when they drafted Jalen Hurts out of Oklahoma, they had just given a $128 million extension to Carson Wentz, who was the number two overall pick out of North Dakota State. They included $107.9 million in total guarantees, which at the time was an NFL record. Hertz then won the job, was clearly better than Wentz. And did they double down on that mistake? No, they traded him to the Colts. And look where it landed them, in the Super Bowl just a few years later. In hindsight, the Wentz extension was a mistake, but it didn’t derail the Eagle’s franchise because they didn’t allow it to compound into additional mistakes.

An inability to do this is often referred to as the sunk-cost fallacy, which is a cognitive bias that makes you feel as if you should continue pouring money or time or effort into a situation because you’ve already “sunk” so much into it. When falling prey to the sunk-cost fallacy, the impact of loss feels worse than the prospect of gain. And so we keep making decisions based on past costs instead of doing the smart thing, which would be to focus more on future costs and benefits. And this principle is one of the largest contributors leading to financial struggles. None of us are going to be perfect. We never will be when it comes to our money moves. But learning from those inevitable mistakes can prevent headaches and position you for a solid future. And that’s what we’ll unpack as I share with you the 10 common investor mistakes. And not so that you feel bad if some of these sound familiar, but rather so that you have the opportunity to pivot off of them and correct these mistakes.

The number one mistake is not having a financial plan. 24% of American workers do not have any type of retirement strategy. None. Only 33% of Americans have any sort of written plan. A recent study showed the biggest roadblocks. 42% of people said they don’t have enough money, “I don’t need a plan.” 19% said they don’t have enough time to make the plan, and 22% say it’s just too complicated to make a plan. So I want to urge you beyond anything else that you hear today, if you do not have a written, documented, measurable, dynamic financial plan, that is the first mistake to remedy before worrying about anything else. That plan is what will guide all of your future financial decisions.

And if you’re not sure where to turn, we make the first step incredibly easy here at Creative Planning. We have helped tens of thousands of people just like you since 1983 get organized through having a documented financial plan that’s tailored just for you. Go to creativeplanning.com/radio to speak with a local financial advisor. We’re looking to sell you nothing. There’s no obligation to become a client. If you have a plan, but think a second opinion would be of value since, after all, it’s your life savings, visit us at creativeplanning.com/radio now and we’ll provide a fresh perspective. Again, that’s creativeplanning.com/radio.

Mistake number two, not having an estate plan. According to LegalZoom, only 34% of Americans have a written estate plan. Only 20% of those 34 have updated it within the last five years. So put it another way, 64% of Americans don’t have a plan, and less than 10% of Americans have a plan that is actually current for their situation. Why does this matter? Because retirees expect to transfer $36 trillion to their family and friends over the coming decades. The number one roadblock in this study: procrastination. That’s right, 40% of respondents simply said, “Just putting it off. I’m just procrastinating.” 33% said they didn’t think they had enough assets, 13% said it was just too expensive, and 12% said they don’t know how to write one. And of course, if you need help with this, we are a law firm with over 50 attorneys.

Number three, trading too much and too often. Remember the Robinhood craze during the pandemic? It was like, “This is so easy, even a caveman can do it,” despite the fact that basically every financial study of all time shows that the less you trade directly correlates to the better your returns will be. Reuters did a study last year that showed the average stock sticks around in the investor’s portfolio for five and a half months. So think about this, a stock which is designed to be a great long-term investment but very unpredictable over the short term, is being traded over two times in one year.

Beyond this, the trend is what I’m most concerned about, because the analysis also revealed that the average stockholding period has been compressing each and every year. In the 1950s, for instance, a typical investor held onto their shares for eight years on average. Now we’re less than six months. And so while we applaud lower costs for trading, and in some cases like at Robinhood, $0 commission fees, we’d probably be better off saying, “Can you charge us $1,000 per transaction?” Then we’d buy and hold and have a lot better shot at making more money.

Mistake number four, letting emotions get in the way. When it comes to investing, you have to have enough conviction and discipline to not only not go with your gut, but go with the exact opposite of your gut. Our emotions lead us astray. This is why a recent study shows that the average investors made half of what the S&P 500 has returned over the previous 30 years. We tend to buy high and sell low based upon emotions.

The fifth mistake we make, chasing yield. It makes sense that a high yielding asset can be seductive. Why wouldn’t you want to try to maximize the interest you’re earning on a bond? Of course, you would. You want more interest than less. But the problem is the highest yields carry the highest risks. In 2022, the Bloomberg Global-Aggregate Bond Index was down 16%. Long-term bonds, down as much as 40%. While US treasury bills, which are one to three months in maturity, up one and a half percent. So if you’re focusing on the whole picture, and the reason this is a mistake is because it really comes back to the fundamental reason why you are owning bonds in the first place. Bond prices move inversely with interest rates, with duration being the number one driver of how far they fall in a rising rate environment, as we’ve recently seen. Don’t get caught chasing yield because there’s always an explanation related to the increased risk when seeking higher yields.

And so to recap the first five of my 10 common investor mistakes, number one, not having a financial plan. Number two, not having it an estate plan. Number three, trading too much and too often. Number four, letting emotions get in the way. And number five, chasing yield. And later in the show I’ll share with you the final five common mistakes I see so that if you’re making them, you can pivot and correct.

I’m joined today by a special guest. Adam Hoopes is a certified financial planner and a wealth manager here at Creative Planning. He spent considerable time digging into the recently passed SECURE Act 2.0. I asked him to come on and help us simplify the basics of this legislation. Adam Hoopes, welcome to Rethink Your Money.

Adam Hoopes: Thank you for having me.

John: Let’s jump right in. What exactly is the SECURE Act 2.0?

Adam: The SECURE Act 2.0 was actually part of a big spending bill that Congress passed. It’s about 4,000 pages, and it funds the US government all the way out until September of 2023. So in typical congressional fashion, what they did was they argued about something for months and months and months and then-

John: No.

Adam: … yeah, exactly… within the matter of a week decided to wedge it into something else. The Senate passed the bill on the 22nd of December, then the House on the 23rd, and then President Biden signed it on the 29th. The provisions we’re talking about today is 2.0, and 1.0 is actually called the Setting Every Community Up for Retirement Enhancement Act, and they passed that back in 2019. So this is called SECURE Act 2.0.

John: Thanks for the background there, Adam. So what did the Act change? What rules are most impacted?

Adam: Actually, a lot of things were impacted mostly in the world of retirement. It all comes down to Congress is trying to help citizens to save more for retirement. So we all collectively know we’re not saving enough money as a people to pay for our future retirement. We relied too heavily on Social Security and other things like that. So the government thought, “Okay, well let me be helpful here.” And some of the things are helpful. These are all targeted around easing the rules and incentivizing Americans to save for retirement. These are things like increasing the amount that you can put into retirement plan, changing the age and when you have to take money out of retirement accounts, reducing the penalties if you miss taking a distribution, creating mandatory and auto-enrollment into that new work retirement account.

John: I mean, let’s face it, we just don’t like being proactive on things. I remember when my wife Britney and I did the TSA PreCheck. It took maybe 25 minutes, it’s not expensive, I think it’s good for five years. And now every time we go to the airport for the next five years, we’re saving ourselves hours of time. But how fewer people will actually spend the 25 minutes to go do it because there’s friction there. And so I think if we’re recognizing human nature and we can make the default for retirement plans to be, “Hey, you’re opting into this thing, you’re contributing,” it will naturally help a lot of people who are well intended and actually do want to save for retirement, but may just be busy and it’s too hard to take the first step. So I think that’s a big one. What else is in there?

Adam: Things like part-time workers used to not be eligible for retirement accounts, now will be eligible. And then the last two provisions really are trying to make things easier for people both who participate in the plan to take money out in advance. So one of the things you might say is, “Well, I might need the money before retirement,” so they started to ease some of those rules. And then they also eased the rules on the other side, which is the companies who sponsor the plans.

John: This makes perfect sense. Taxpayers pay less in the long run if we can make it easier for people to save for retirement. Which of the changes associated with SECURE 2.0 do you think will most widely impact us?

Adam: I’m going to focus on the individual, the saver-

John: Sure.

Adam: … the employee side. There are a slew that are on the company side, but most people wouldn’t see that. I would say the number one thing by far is what we call the required minimum distribution age. So what does that mean? That’s financial nerd talk for when do I have to take money out of my retirement account? And so back under the SECURE Act 1.0, they changed that age from 70 and a half to 72. Now this new law changes it to 73. But if you were born in 1960 or later, it changes it to age 75.

This has definitely been the biggest headline for this Act, but it’s also been the one that’s probably caused the most confusion. For example, I have a client, and he reached out to me and said, “Hey, I turned 72 in 2022 before the Act was taken, and I had to take money out of my IRA. So I turned 73 in 2023, do I still have to take money out in 2023?” And the answer is yes. Basically, the rule of thumb is, if you ever ring the bell and start having to take money out of your retirement account, you always have to from that point on.

John: Well, I think that makes all sorts of sense because, first off, 70 and a half made no sense, it was confusing. But I also think it makes sense to push this back because we’re living longer than ever before and we’re working so much longer as a society than ever before.

Adam: Yeah, so the other big points, to your point, trying to make it easier for people is they’ve removed a required minimum distribution for Roth source funds and workplace retirement accounts. So under the previous laws, if you contributed to your 401(k), and most people contribute on a pre-tax basis, that means that I’m going to get a reduction in my taxes today, but I pay tax on it when it comes out later. There’s another source that you can use called Roth Source 401(k), and what that means is tax me on it today, but then no tax when it comes out later. The problem was under the previous rules, if you had all these different sources of funds inside one 401(k), they still required you to take a distribution once you reached a certain age. Even though that money, Roth Source, doesn’t require by itself, the umbrella that it’s in, the 401(k), did as a whole, so they fixed that problem. So that’s definitely going to help people.

I will say most clients would’ve rolled that money into an IRA and a Roth IRA so they didn’t have that issue, and I’m sure it’ll help some people, but there was already a really easy solution for it. Also, the next biggest thing I think people would see is starting in 2025, you’ll actually be able to contribute more to your retirement account and your IRA account. There’s something called a catch-up contribution limit. Once you get to a certain age, so you’re getting closer to retirement, if you haven’t saved enough, the government wants to give you the ability to put even more money into retirement. Now, what they’ve done is they’ve increased that number by at least 50% starting in 2025. So we’ll see that be a larger number. They’ve also indexed the amount of this catch-up contribution for IRAs. Not going to be a big change, but you’ll start to see a little bit more. So again, it goes all the way back to Congress is trying to do everything they can to allow you to put more money into retirement accounts.

Additionally, there’s that mandatory auto enrollment escalation. This is, in the financial nerd community like you were saying, it’s a great feature, but it hurts doing it. So now this requires it. It used to be the plan could set it up. Now they’re required to have all new plans starting in 2025 that at a minimum you automatically start at 3% per year, but you could start at as high as 10%.

John: Well, I think this is fantastic because basically we’ll end up having people that weren’t paying attention wake up one day at retirement and go, “Wow, I’ve saved a lot more than I realized,” because all of this was on autopilot. Actually requiring them to go back in and opt out rather than opting in, that’s a fantastic way to get more money saved.

Adam: Yeah, I would totally agree. The best example I can give you of that is my own savings for my son’s college. We’ve got three boys that are in college right now. We started saving with as little as $25 a month into a 529 plan account. That money grew and grew and grew over time, and eventually we’re putting more and more contributions in. But even a small amount that you can save on a consistent basis, the time value of that money is going to grow and grow and grow to the point where it’s going to be there. It may not solve every problem you’ve got, but you’re going to be a much better situation even saving a small amount into either retirement account or 529s.

John: I’m speaking with Adam Hoopes, certified financial planner and wealth manager here at Creative Planning, and we are discussing the SECURE Act 2.0. If you’ve got questions and wish to speak with us, visit creativeplanning.com/radio to request a visit with a local advisor like Adam or myself.

Adam, we could do about 10 shows unpacking the 4,000 pages. In our last few minutes here together, what other notable takeaways do you think we should be aware of?

Adam: The other part is that there’s something called a Saver’s Match. Under the current law what happens is if you have a lower income and you put money into your IRA, your 401(k), the government wants to basically give you money to help you with that. Now, normally what they do is they give that to you as a tax deduction, and then that actually is refundable to you, so it comes into your taxes. Well, they’re going to change that and say, “Hey, that’s great, Bob, that you made that contribution. We really like that. We’re going to put money into your IRA for you.” So TBD on how they’re going to actually do this, but this is slated to start in 2027, so I think there’s going to be some clarification on that.

Another one, I think people will be pretty excited about is student loans. It’s a really big item with Congress right now is trying to help reduce the student loan burdens. So what they’ve said now is that employers as employees put money into a retirement account, so you put money in your 401(k), instead of putting the match into the 401(k), you can direct that to a student loan. It’s, again, one of those things, they’re just trying to do as many things as possible to incentivize someone who maybe was on the fence about putting money into a retirement account can now direct some of that money that they would get as a match to go towards student loans. I could see that being beneficial for a few people.

John: Absolutely.

Adam: In addition, they’ve also then, and this is kind of a bunch of different things that they’ve done at once, they’ve tried to make it easier for people for retirement to pull some of that money out. The first thing is they made it easier on the companies because before… These are what we call a hardship withdrawal. So you’re going through a situation where you’re like, “I need this money or I’m going to get kicked out of my house, I’m in a hardship.” And so, the employers were required to go and certify that that was true. Now the employee will self-certify that. So think of that as trying to help make the plan sponsors be more confident and less likely to prevent these type of withdrawals.

The other one is that you are now able, starting in 2024, to take up to one distribution a year of up to $1,000, and you don’t have to pay a penalty on that. And you could even pay it back within three years. And then the last one is that if, and God forbid this happens, and it will happen to people, if you are a victim of domestic abuse, you can take money out of the retirement account to help during that timeframe when you experienced domestic abuse. So those are just all different little things that they’ve tried to do to make things easier, to make people more interested in putting money into these accounts.

John: Well, so you’ve shared with us all the great things about the SECURE Act 2.0, but as it is with most things, I’m sure there’s a little bit of a give and take. So what do you think are a few of the aspects that won’t quite be as helpful or maybe even are negative aspects of this legislation?

Adam: Yeah, absolutely. The very first thing I would say is that anytime that Congress giveth, they have to taketh away. So there’s actually a rule that says if we reduce the net amount of money that comes into the federal coffers, we’ve got to then do something that offsets that reduction. So how do they do it here, because they’re requiring people to take less money out of their accounts and put more money into them? Well, the hidden part of that is that if you reach a certain age right before retirement, you’re going to make what’s called catch-up contributions, and those catch-up contributions used to be all pre-tax eligible. Now they have to be Roth Source. So it’s kind of a move backwards for employees who are trying to save, trying to do maybe a burst amount of savings right before retirement because they’re in their highest earning tax years.

And then as wealth managers, what we’ve helped people to do is maximize your retirement savings the last year or two of retirement if you’re not… or last year or two of work if you’re not already doing it, because then in the first two years of retirement, we could do things like Roth conversion or just take the money out and you’d pay a much lower tax rate. So there’s going to be an offset there because you’re going to be paying the highest tax rate you will arguably during your lifetime in the years right before you retire.

Additionally, they came up with something that they think is going to be really helpful called a Retirement Savings Lost and Found. So what they want to do is create a national online searchable database of all the retirement plans so that if you’ve lost one, you can go and search it. In my experience, anytime the government puts together a big database, it never works really well, number one, and there’s also already tools online to help you find that. Every state has a tool available for you to go and find lost assets like that. So it’s, again, a solution where there was no problem.

And then the last one is that employers can now set up emergency savings accounts. So basically, this provides employers the option to offer their non-highly compensated employees, financial nerd talk for people who make usually less than about $140,000 a year, they can allow them to have a pension-linked emergency savings account so the contributions go in after tax and the first four withdrawals from this account each plan year may not be subject to fees or charges solely based on withdrawal. I don’t envision a lot of employers setting this up. I could be totally wrong, and this may turn out to be the next big thing that happens in our world, but I feel like this is going to be so complicated and minimal amount of savings here that most people are not going to see this at all.

John: I would agree with that as well. Well, Adam, we’ve covered a lot and I didn’t even get to half of my questions. So I’m going to have you back on, if you’re good with that, here soon to cover some of the other provisions. But appreciate you highlighting some of the key bullet points today regarding the newly passed SECURE 2.0.

Adam: Thank you for having me.

John: If you want to dive into the details on SECURE 2.0 more, Adam wrote a great article for our clients here at Creative Planning, and I’ll post that to the radio page of our website at creativeplanning.com/radio. And of course, if you have questions about anything regarding your personal finances, Barron’s has called us a family office for all. 50 attorneys, nearly 100 CPAs, 300 certified financial planners. We’re a law firm, a tax practice, and a wealth management firm helping families in all 50 states and 85 countries around the world managing or advising on $225 billion. Why not give your wealth a second look by going to creativeplanning.com/radio now to speak with a local advisor.

One of Warren Buffett’s most famous quotes, and he has a lot of them, states that it takes 20 years to build a reputation and five minutes to ruin it. “If you think about that, you’ll do things differently.” It’s true though, isn’t it? I mean, it’s a shame how long it takes to build success when you can nearly lose anything in an instant. I recently read a book that posed the question how different your life would look if you could simply eliminate the five largest mistakes in your life. It’s an interesting question to ponder when you think about what those five mistakes are, we’ve all made them, but just being able to go back with the benefit of hindsight and change those decisions, turn those mistakes around, I don’t know, for me, would have some positive implications. There’s no doubt about it.

And this is why when it comes to our money, taking big swings with your investments is so hard to over-perform because imagine if for 20 years you happened to be the best investor on earth, you were quadrupling market returns, were timing the market correctly, finding the right individual stocks. But then in year 21, you made a big bet on NFTs or during the pandemic you went all in on the stay-at-home stocks and didn’t get out in time. I mean, may have been the first time you were actually wrong or made a big mistake in a couple of decades. And because of that you lost everything.

This is why successful investing is far more about avoiding mistakes than it is about finding the biotech stock before it jumps 1000%. And it’s clearly unrealistic for us to expect we’ll make no mistakes. But my objective today is to continue sharing with you common investor mistakes so that you have better odds at avoiding these same mistakes for yourself. The first in this second set of five mistakes is forgetting about inflation. Inflation’s a weird one because not withstanding the recent run-up in inflation and how much that’s been in front of us and in our consciousness, typically inflation’s subtle, it’s just this pervasive in the background erosion of our purchasing power that we’re not paying a whole lot of attention to.

But did you know that historically speaking, in normal inflationary environments, not what we’re seeing right now at over 6%, your money must double every 23 years just to avoid an erosion of your purchasing power. You’re not even getting ahead if a million dollars goes to $2 million over a two decade period, you’re just staying even. This is why when you move to cash out of fear for losing money in other investments, you’re doing nothing more than jumping from the frying pan into the fire. Because although you might look at your statement and say, “Well, I had $100,000 in there and now I still have my $100,000. That’s why I put it there, was to preserve my capital.”

No, assuming inflation’s around 6%, nope, you just lost $6,000. How would you feel when you received your statement at the end of the year if instead of saying you have $100,016.12, or whatever measly amount of interest you earned sitting in cash at your custodian or in your bank, but rather your statement showed your real return on your investment, your true return on investment, which would indicate a value of about $94,000? I mean, you’d drive right down to that bank and say, “Something’s wrong. I had it in cash and you’re showing that I lost six grand.” We’d never do that, but that’s actually what we’re doing when we forget about inflation.

We notice inflation if we zoom out a bit. Think about what you paid for your first car. Along those lines, what’d you pay for gas the first time you filled up that tank? How much did you make at your first job? And so, one easy way to avoid this mistake of not getting clobbered by inflation is to be very mindful of how much you have in fixed income investments, because during inflationary periods, you put 100 grand into, say, a CD, you collect your interest and 10 years later when you receive your $100,000 back after that CD matures, just remember that that $100,000 is not purchasing what it used to 10 years earlier when you bought the CD. Its value has dramatically declined every year you owned it.

Next investor mistake to avoid, falling in love with a company. Another way to describe this would be loyalty bias. Be unconditionally loyal to your kids. It’s probably the only human relationship where love is completely unconditional. I remember talking with a client about this and they said, “Nope, John, you’re wrong. That’s not right.” I was like, “Really?” But I was confused because this couple is very involved in their adult children’s lives and I knew they had a lot of love for their kids. They said, “No, John, it’s grandkids. Once you have grandkids you realize that’s at the top of the list for unconditional love.” I was like, “All right. Yep, you got a point. I don’t know that yet, I don’t have grandkids. Hope that’s not for a while, but I could see where you’re going with that.”

And when it comes to falling in love with a company stock, I’m not just talking about pandemic darlings that came crashing back to earth, Peloton, Carvana, Teladoc, Zoom. But it’s worth noting there’s a razor-thin margin between the cutting edge and the bleeding edge. Remember around the turn of the century, everybody was big on the internet, it’s going to change our life, and by the way, they were correct. But buying AOL, which was the dominant player at the time, you went broke. Search engines, “This is going to be a big thing, John.” Yep, you’re right. But it wasn’t the early leader of Yahoo that ended up monetizing it. It was Google. How about WorldCom? Does that ring a bell?

But forget those risky, high-flying tech stocks. What about huge, long-standing companies. Can’t fall in love with those either. General Electric, it dropped 80% and is still off its 2016 high by 65%. It’s unlikely that will ever come back. Bank of America went down to $2.63 a share at its low in 2009. It was down 90% off of its 2007 high. And here’s the real challenge, in 2020, the average lifespan of a company on the S&P 500 index was just over 21 years but was 32 years in 1965. So there’s a clear long-term trend of declining corporate longevity with regards to the largest American companies, which means even the largest, most successful companies, if they’re only around about 20 years, you better not fall in love with it too much, I mean, that is longer than the average marriage lasts in America, but that’s not a lifelong hold. You’ll have to figure out when to buy and sell.

And that is incredibly difficult to know when a stock drops 70%, “Is this just one of a couple drops that I’m going to see with Apple on its way to becoming the largest company in the world? Or is it going to look more closely like the vast majority of stocks that have a lifecycle and never come back?”

Next investor mistake to avoid, not understanding the investment. My wife and I put in a swimming pool when we purchased this last house. The excavator, when he found out that I was in wealth management, started telling me about his portfolio, all the different cryptocurrencies that he owned and how much money he had made and that that was the future. He was really surprised that we weren’t investing a lot of our clients’ money into crypto because he’s like, “John, I mean, do not really get it, this is the future. You can’t keep investing like it’s 30 years ago. This is where things are going. It’s so obvious.”

Clearly it was a huge mistake for him to not understand the risks involved in those investments. And so here’s how I look at stock market investing. Statistically, it’s darn near impossible to pick the right stocks or to time the market successfully over long periods of time. And so as the late John Bogel said, “Don’t try to find the needle in the haystack. Instead, buy the entire haystack.” Meaning own the largest companies across various sectors and geographies and benefit from their profits as a shareholder. Only about 4% of all traded securities have accounted for 100% of the market’s returns over the last 100 years. And so there’ll be a few winners, but there’ll be a lot of losers and a lot of just… companies that’ll come and go, go. But that strategy, where you simply buy the broad markets, has earned nearly 10% a year for 100 years. Of course, past performance is no guarantee of future results.

Our next investor mistake to avoid is wanting to get even. And this very closely mirrors the gambler’s fallacy, where the gambler chases losses and as they’re back at the ATM getting more money out that they can’t afford, they state the famous line, “Once I’m back even, I’m stopping.” Famous last words. Good luck getting back to even playing a game where the odds are stacked against you. But speaking of gambling, did you know that $16 billion was gambled on the Super Bowl alone? It was played in Arizona, which was the first state ever with legal sports betting. Next year is going to be absolutely crazy with the Super Bowl bean in Vegas for the first time. I expect that $16 billion number to be blown out of the water.

Popular sports betting site, FanDuel, said it was taking in 50,000 bets per second at its peak. And DraftKings, their competitor, paid out $2.68 million to one better on the Chief’s win. That person better be washing Andy Reid’s car in a Mahomes jersey for the rest of their life. That is an unbelievable haul. I found this interesting, GeoComply, a company that verifies the locations where gamblers are betting saw 100 million sports betting transactions this Super Bowl weekend. And specifically in and around State Farm Stadium in Glendale, Arizona, more than 100,000 transactions were verified on Sunday. And also, if you bet that the Gatorade bath poured over the coach would be purple, those were nine to one odds. So congrats on the big victory. Apparently the most likely color going into the game was blue. So there you go, don’t worry, plenty more useless information as we continue on. But here’s why this is such a big mistake when it comes to your investments. The stock that you’re waiting to get back even on doesn’t know what you paid for it. It’s irrelevant.

The final investor mistake that I hope you can avoid for yourself is investing money in the stock market that you’ll need soon. Your time horizon is by far the most impactful piece of information in dictating how and where you invest your money. If you don’t need the money for 10 years and you’re not going to freak out over short term volatility, you should be in stocks if you’re looking to provide yourself with the highest likelihood of the best outcome over a 10-year period. By contrast, if you need the money in one year, it’s really risky having that money in stocks. But I saw a prospective client recently who had money in a retirement account that they would be penalized on if they took a withdrawal from within the next 25 years, and 60% of that account was in a stable value fund and bonds. When I asked why, they said, “I don’t know. I don’t think the market’s going to do that well. I’m kind of worried about a recession.” Wait, what? These are monies you don’t need for 25 years. None of that matters. You need this to be as big as possible 25 years from now. And the odds of you achieving that with the majority of the account in fixed income or cash is not the approach you want to take.

And so to recap all 10 investor mistakes so that you can avoid these for yourself, number one, not having a financial plan. Number two, not having an estate plan. Number three, trading too much and too often. Number four, letting emotions get in the way. Number five, chasing yield. Number six, forgetting about inflation. Number seven, falling in love with a company. Number eight, not understanding the investment. Number nine, wanting to get even. And the 10th and final one that I just shared with you, investing money in stocks that you’ll need soon.

In addition to being aware of these mistakes, what else can you do to avoid them? Have a true documented, measured financial plan and find someone you trust who can help hold you accountable to that plan. We all struggle when left to our own devices. So often simple rules aren’t easy to follow. If you think you’d benefit from a fresh perspective and aren’t sure where to turn, visit us now at creativeplanning.com/radio to speak with a local fiduciary advisor not looking to sell you something, but rather give you a clear and an understandable breakdown of exactly where you stand with your money. We’ve provided the second opinion for thousands just like you. Reach out today for your complimentary meeting at creativeplanning.com/radio.

Well, I’ve received many questions around the debt ceiling and, in particular, whether there’s going to be likely a serious issue for your investments, for the markets if it isn’t resolved. So let’s talk for a moment about what is, in fact, going on with the debt ceiling. By definition, the debt ceiling is a limit on the amount of money that the US government can borrow to pay for everything it’s already approved spending on. By the way, only Denmark and the US have this legislative limit on their debt. It was designed as a way of keeping ourselves from being reckless in the future with spending. I think one of the positives is that it does force us to have conversations about how the government, in fact, spends money. But as Derek Thompson of the Atlantic brilliantly stated, “It’s too weak, and it’s too strong.”

It’s too weak in that this has happened 70 times in the last 100 years. Congress can just vote to lift it, it’s not hard, but it’s too strong because the negative consequences in the event that they couldn’t find a resolution are completely out of whack proportionally to the behavior that we’re trying to regulate. And like a lot of things in our country right now, it’s mostly political. What happens is the party that’s not in power tries to appear like they actually care about debt and balancing the budget, even though other than outside of a couple of the Clinton administration years, we’ve run it a deficit for decades, regardless of who’s in power. So this is a great way to act like they care without actually having to do anything.

Interestingly, we already hit the debt ceiling, but the government employed extraordinary measures, they called it. Basically just navigated with some accounting tricks and moved some money around so that we’re in good shape until sometime in the summer. And so what in fact would be the implications if we were to default on our debt? We’d no longer trust America’s debt market was the safest in the world, and so we’d pay more for future borrowing, interest rates would skyrocket, you can look at Canada in 1994. But the likelihood that this is anything more than posturing and that would run all the way to us actually defaulting on our debt, which everyone agrees would be very bad for the economy, is highly unlikely. This is much more of a political issue than anything else.

If you have questions around your investments, estate planning, taxes, whatever’s on your mind, take the simple first step that so many others just like you have already done by contacting us atcreativeplanning.com/radio to speak with a local advisor. Why not give your wealth a second look?

I want to transition to an experience that I had with my 11-year-old son Cruz this past weekend. We were doing a father-son trip up in Northern Arizona, and we were talking about all things going from a boy to a man. A foundational part of our discussion centered around Cruz recognizing that if he follows the herd, he’s going to get slaughtered. I encouraged him, “A big part of growing up is not being the type of person that just follows the pack, be willing to go against the grain. Be a leader, have convictions, stick to those convictions.”

It was interesting because as we pulled up to the Grand Canyon, there were four lanes to get into the national park. The two on the left had pretty substantial ranger stations. The two on the right had little huts barely larger than an outhouse. And in the two left lanes there were 30 to 40 cars in each. The two right lanes only had one or two cars in them. And so I initially went into one of the left lanes, but while I was sitting there for about 30 seconds, I’m reading the signs on the right. Do you need an annual pass over there, is it cash only? What’s going on with those lanes? And I’m reading and I don’t see anything. So I go, “Cruz, I’m pretty sure we can go over to those lanes,” and I move over to the right lanes.

I pull up to the window and I said, “Can I get in through this lane?” And she said, “Yeah, absolutely.” And I said, “Well, why is no one in these lines? Why are all those cars backed up over there?” She said, “I don’t know. Everybody just follows the herd. This happens every day.” As the lift gate went up and I grabbed our map and we went driving into the park, I glanced over at Cruz and smiled and said, “See, this is why you want to think for yourself, what we just talked about.”

And when it comes to your money moves and your financial success, you follow the herd, you’ll get slaughtered. Period. Consider this, last year, 2022 fixed income aka bonds, we’re down between 13 to 17% depending on credit quality and duration, and they experienced one of the largest outflows in years, $265 billion in net outflows from fixed income with the vast majority of those occurring after the drop. Most came in Q4. Large growth got hit the hardest in 2022, down 30%. Well, I’m sure a lot of people bought large growth on the way down, right? They were rebalancing, they were buying more shares because we know that if you buy low, you sell high. Down markets are opportunities to pick up stocks at good prices. Now of course, no, that didn’t happen. Instead, $68 billion flowed out of large growth, again, most of which taking place once the losses were incurred. And not surprisingly, large growth led the charge in January as the best asset category. But too bad all that money flowed out.

If you follow where the masses are moving their money, you just have a front row seat to witnessing their recency bias and their emotions. Remember, the average American investor has barely outpaced inflation for the last 30 years on their stock investments while the broad markets have returned almost 10% per year during that time. I mean, the average American would’ve been better off financially from a return standpoint being stranded on a deserted island. Tom Hanks in Castaway crying over Wilson floating away, they would’ve finally gotten back to the mainland down that dusty country farm road, opened up their statements, said, “Wow,” and been astonished at the growth. They would’ve crushed all their friends that were trading all day long and researching companies. While he was out trying to make fire, he would’ve made more money.

And so instead of following the herd that has an atrocious track record of investment success, find people ahead of where you are now who have already been where you are and that have demonstrated the behavior, that have found the results that you are desiring. I told Cruz on this weekend trip, “Show me your friends, and I will show you your future. The number one contributor to where you go in life, Cruz, will be who you surround yourself with. Put another way, you’re the average of the five people you spend the most time with. Choose wisely and don’t follow the herd.”

Making those sorts of memories with my kids is really one of the most fulfilling aspects of my life. I’m not going to lie, it is also organized chaos with seven kids a lot of the time. And my wife reminds me, “The days are long, John, but the years are short, don’t wish them away.” And she’s absolutely right. And so as I conclude today, I want to share with you another special memory I had with our second grade daughter, Zaya. I volunteered to be the mystery reader, they call it, in her class. And so what happened was I sent in three clues about myself, and then before I actually come in to read, they share clue one, clue two, clue three, and the kids guess at who that reader’s going to be.

My third and final clue was a dead giveaway. It was that I have seven kids and a dog and a cat. So Zaya comes bounding into the office to get me to come down to her classroom to read with her friend Gracie. And as she opens the office door, she exclaims, “Dad, I knew it was you after the third clue.” I said, “Yeah, that was pretty obvious, wasn’t it?” And she said, “Yep. Right when it said you have a cat, I knew it was you.” The office staff and me just looked at each other and started laughing. That was the distinguishing factor in Zaya’s mind was that I had a cat. Not the seven kids, the cat, that was the unique part.

But I share this story with you because the book that I chose was a children’s book on the principles of giving, of saving for a rainy day, and of enjoying some of the fruits of your labor on things that you desire. My vision for our children is to ensure that they understand clearly that money is not the root of all evil, as the Bible verse is so often misrepresented, but rather, the love of money is the root of all evil, that rich people aren’t inherently evil or simply way luckier than they are. And sure, while some luck is certainly contributed to the success of someone like Bill Gates or Jeff Bezos or Elon Musk, they also probably made considerable sacrifices and took significant risks to achieve their wealth and applied themselves and worked hard, along with probably a few breaks that went in their direction.

But I also want my children to know that money isn’t a zero-sum game. One person having financial success doesn’t mean that they have less opportunity because of that, that person somehow got more of the pie, but rather the pie itself is continually growing larger. And in fact, when it’s working well, one person’s success can actually help catapult someone else to more success. And so, I encourage you with your children, with your grandchildren, nieces and nephews, don’t just pass on your valuables. Much more importantly, pass on your values to them as well.

Money in my home growing up was a hush hush thing. We didn’t talk about it, I didn’t learn about it, and I think that was somewhat generational. But it’s no secret that the values and the advice and the experiences that we encounter as children shape certainly how we relate to other people in life, but also how our early experiences shape our relationship with money. And so understanding where you come from not only helps you plan for financial success, but hopefully it’ll also provide you the tools to help your children develop healthy and positive financial habits as they move into adulthood. Because money when used in alignment with the things that matter most in our lives is an incredibly powerful tool in accomplishing great things. This is especially important because we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

If you enjoy the podcast, please subscribe, share, and leave us a rating.

Disclaimer: The preceding program is furnished by Creative Planning, an SEC registered investment advisory firm that manages or advises on $225 billion in assets. John Hagensen works for creative planning, and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning. This show is designed to be informational in nature and does not constitute investment advice. Different types of in investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on the show, will be profitable or equal any historical performance levels. Clients of Creative Planning may maintain positions in the securities discussed on this show. For individual guidance, please speak with an attorney, CPA, or financial planner directly for customized legal tax or financial advice that accounts for your personal risk tolerance, objectives, and suitability. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning Tax and Legal are separate entities that must be engaged independently.

Important Legal Disclosure 

Have questions or topic suggestions? 
Email us @ podcasts@creativeplanning.com

Let's Talk

Find out how Creative Planning can help you maximize your wealth.