Executing a comprehensive financial plan is an important step in avoiding financial mistakes in creating and maintaining financial independence. Disappointing outcomes often result from decisions based on impulse or emotions. We are “only human after all”! Experts have researched behavior in the world of behavioral finance. People like Daniel Kahneman, Amos Tversky, and Richard Thaler are just a few that have shown, while we believe we are rational individuals, most often our brains and our emotions are unreasonable. 

Human beings, with goals and dreams, would like to avoid financial mistakes in executing a comprehensive financial plan. Mistakes slow or stop the achievement of a comprehensive financial plan. Yet, in my observation as a financial advisor, it is obvious when we wander from our comprehensive financial plans the culprit is often not logic or the plan. It is often due to a feeling or emotion that pulls us astray.  We are only human after all! 

comprehensive financial planThinking taxes are the exclusive answer:

The notion of reducing the amount of taxes is compelling and no one should pay more than is required by the law. Yet often, as investors, we are lured into investing in products that are clearly not in our best interest of comprehensive financial plan. The notion of “Pay less in taxes” becomes a  siren song. In some cases, annuities can serve an important role, particularly for retirees with marginal resources available for income. Annuities are often a very expensive investment option that is used to defer income. Note the word ‘defer’. It is not ‘tax-free’ or ‘tax exempt’.  

Someone will indeed pay taxes someday. Since there is no step up in basis upon death it turns out to be the worst asset to leave to someone -as they will pay tax on the gains when they use the money. In other words, “pay me now, or pay me later”. The extra cost of these products nearly always wipes out any potential gain that may come from deferral.

It is not a good time to invest:

Oh man, have I heard this one a lot!  “The market is too high” or “the market is going down”.  Of course, we all want to invest at the perfect time to maximize the impact of our comprehensive financial plan. In reality, successful investing is made of a variety of decisions, some great, some good and some not so good.

Market corrections of 10%, 15% or larger correction and investors might believe it is best to wait until that happens. Nearly all of the time it does happen. Only after the market has gone up 10%, 15% or more! The market goes up and down but timing the markets is the most proven horrible investing strategy EVER! When is the best time to invest? When you have more cash than is prudent for cash reserves.

Lack of Diversification:

The lack of diversification has absolutely destroyed more personal wealth than anything I have ever seen.  The huge setbacks in making progress a comprehensive financial plan can be dramatic. Often, the reason the lack of diversification becomes problematic is the very reason the wealth was created in the first place. Often from a single stock or idea. Executive in a company, through stock-based compensation, or ownership in a private enterprise creates significant value. Then the company goes through a liquidity event and the wealth becomes liquid. 

Executives can think “if I can find the right stock” or worse, “ I can do this again and again”. Phrases like these are often signposts on the highway to financial disaster. It is important to recognize, investors individually are competing with all other investors, many with advanced degrees and years of experience.  Smart investors recognize to perform this task consistently is an amazingly difficult task. 

The world of diversification has changed over the years. Stocks, Bonds, and Cash are not the limits of diversification today. Contemporary diversification strategies are a much broader and more robust including a number of opportunities in alternative assets. Alternative investments include things like real estate, lending, and other investments can lead to a more stable and productive portfolio.

In the next post, we will think about 3 more potential mistakes to ignore.


The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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