Financial Advisers Reveal the Worst Mistakes Their Clients Made

What were you thinking?! If you’ve ever kicked yourself for making a big mistake in saving, spending or investing your money, take heart. Financial ­advisers have seen much worse. What really matters, they say, is understanding how you could have avoided the goof and how you can do better in the future. 

Bottom Line Personal asked five of the country’s top financial advisers to reveal the most memorable blunders that their clients made—often ­disregarding the adviser’s advice. Here are the takeaway lessons for consumers and investors…

Home renovation that tore apart a financial plan. For many years, a couple dreamed of redoing their kitchen, a $100,000 project. But they kept postponing it until they retired. At that point, they weren’t content to just redo the kitchen. They gutted the downstairs bathroom and wound up renovating most of the first floor. The final bill came to more than $450,000. The out-of-control expense forced them to drain much of the money in their taxable accounts and then start drawing on the investments in their tax-advantaged retirement accounts, selling many of the investments years earlier than the couple had planned.

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Wes Moss, CFP, is chief investment strategist at Capital Investment Advisors, which manages more than $2 billion in client ­assets, Atlanta. He is author of You Can Retire Sooner Than You Think: The 5 Money Secrets of the Happiest


Financial surprise that came after a husband died. A woman’s husband died suddenly when she was 60 years old. He had been an executive at a financial-services firm, and she had not been involved in—or even aware of—any of their financial decisions, particularly those related to his pension. She had been content to let him handle all the finances, and they rarely spoke about financial planning. Fortunately, he had a pension plan with survivorship benefits that started paying the widow about $30,000 a year. The money was a lifesaver, helping to pay her expenses so that she did not have to sacrifice her lifestyle. In her mid-70s, the widow came to me in a panic. She had received a notice that her monthly checks would end when she turned 80. For reasons she will never know, her deceased spouse had chosen to have the survivorship benefits continue for only 20 years after his death. This put a great strain on her ability to continue funding her retirement. 

Lesson: It’s OK if one spouse or partner oversees all the practical aspects of a couple’s financial life—as long as the other person is informed of the key details…and as long as the couple makes crucial financial decisions together. 

The $1,500 repair that could have saved $30,000. A man owned a Ford Ranger pickup, and the vehicle’s transmission died. It needed $1,500 worth of repairs but still was a perfectly good vehicle with moderate mileage, and it was all paid off. But the man didn’t have the repair money. Faced with having no transportation to get to work, he saw a car dealer’s ad in the local newspaper that was offering a no-money-down deal for new Ford F-150 trucks costing $30,000. The young man’s girlfriend called me from the dealership as he was about to commit himself to many years’ worth of $300 monthly payments, not to mention much higher auto insurance costs. I was shocked because the man had several friends who would have loaned him the repair money. 

Lesson: Even smart people are susceptible to impulsive and irrational financial decisions when they feel desperate. Stress distorts your perception of potential outcomes, inhibits strategic thinking and leads you to disregard the long-term consequences of your choices. Fortunately, I’ve found that very few financial crises require instant action. If you risk making an impulsive decision that may backfire, force yourself not to make a decision for 24 hours. You’ll find that the delay allows you to think more clearly…weigh a variety of options…and make a better choice for the long term.

Charles Sizemore, CFA, is chief investment officer of Sizemore Capital Management, Dallas, and coauthor of Boom or Bust: Understanding and Profiting from a Changing Consumer

Lesson: Fixed-income investors have suffered through an era of historically low interest rates, which may continue for some time. But stretching for yield with bonds—either by holding longer-term bonds or those with lower credit quality—can be reckless. Bonds are for capital preservation and dependable income, providing a crucial shock absorber in your portfolio to offset more volatile investments. If you have the time and temperament to take more risk in search of higher yield, do it with relatively safe dividend-paying stocks and real estate investment trusts (REITs).

Marilyn Cohen is CEO of Envision Capital Management, which manages bond portfolios for wealthy investors, El ­Segundo, California. She is author of Surviving the Bond Bear Market.

Professional athlete who didn’t understand his $1 million investment. A pro athlete was approached by his brokerage with an enticing sales pitch. He could invest well over $1 million in a high-octane hedge fund, the kind of fund that usually is reserved for the ultra-wealthy and that uses complicated, hard-to-understand strategies. The athlete was mesmerized by the fund’s allure, even though it came with ­hundreds of pages of disclosures explaining the risks and annual fees as high as 11%. After several years in which the fund drastically ­underperformed the broad stock market indexes, the athlete decided to pull out his money and invest it elsewhere. That’s when he learned that the fund had the right to “gate redemptions,” meaning he could cash in only a tiny percentage of his investment each year. He has been making withdrawals for years and still has a ways to go to get out completely.

Lesson: If you don’t understand what you are investing in, admit it and don’t invest. Investors often get into trouble because they feel the need to be sophisticated and aggressive…and because they are attracted to “sexy” investments. I’d rather be in boring investments that grow my money more steadily. Complicated strategies often sound like they’ll be more profitable than simple, transparent strategies such as stock index funds. But complexity pushes up fees…increases the likelihood of unexpected consequences…creates unnecessary risks…and makes managers arrogant because they don’t have as much accountability to their investors. 

Allan S. Roth, CFP, CPA, is founder of Wealth Logic, LLC, a fee-only investment adviser in Colorado Springs. He is author of How a Second Grader Beats Wall Street: Golden Rules Any Investor Can

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