The Seven Deadly Investor’s Sins – Episode 325

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[00:01] Welcome to the Prosperity Podcast. On this episode of the Prosperity Podcast, we are going to be talking about the seven deadly investor sins that we got from a PDF. It’s a white paper, some of these things we may agree with and some we are going to scream at. How about that, Kim? Yes. I promised them to actually scream on the podcast, but holy cow, when I read that, I just was internally screaming, you know, cheering and then screaming alternatively. Yes. Yes. So this report, I think a lot of this happens from people getting lost in their own little echo chambers and not seeing the reality of life. Or maybe it’s just these biased opinions from giant companies. I don’t know how stuff like this can get created.

[00:55] So first, we are going to discuss some of the top pieces. So one is inappropriate asset allocation. That sounds like another language, but we’d love to hear what your take on that is, Kim. Well, it’s an interesting term. So let’s just start with asset allocation. This has been in the language of investment advisors forever and ever and ever. And just in case somebody doesn’t know what it is, it typically says take your assets and allocate or break them up into various percentages of things. So you’ll see something like, oh, you should have 10% of your money in cash and you should have maybe 30, 40, 50%, depending on your age, in stocks and some other percent in bonds. And it’s insane because they typically never include any alternative asset classes,

[01:47] number one. Number two, they state it as if that asset allocation is going to solve somebody’s investment problems. And it’s just not true. And today, especially as the stock market continues to wander around and the bond market continues to be sadly pathetic, it’s very, very risky. And my husband even has a fun question around the bond market. And it’s like, why on earth would you put any of your money in bonds? Well, the answer to the question is people put their money in bonds because they don’t trust the stock market to do what it’s supposed to do. And so they use bonds as the supposed offset of that. That whole idea is not a winning strategy. No, it’s not. And I love the way you’re saying that.

[02:42] The stock market wandering around. I mean, how certain does that sound? Not at all. And certainty is one of the prosperity economics movement’s principles. And we want to focus on it and make sure that we are seeking it and finding it. Absolutely. OK, so second number two of the seven deadly sins is having too much cash. Yes, yes. So this is something that a lot of people are finding themselves in this space right now because people don’t know where to invest. They do see the stock market wandering around. They’re unsure of things. And so they sit on the sidelines. And there’s some good to that. You want to be prepared for opportunities. Yet you also want to make sure that you have a good place to store said

[03:37] cash when you are doing so, so that you’re ready, but that it’s also working for you while you’re waiting to be ready. And most people, frankly, just don’t have a good place for that. And we’ve shared on this podcast, it is no secret that we believe that whole life insurance cash value is a wonderful place to store cash in order to be ready for opportunities. And most typical financial advisors do not deal with this space at all. They do not get any dollars focused on cash. They do not enable people to have a good even the old style asset allocation of cash. And regardless of whether you agree or disagree with asset allocation, cash is a very missed space. It’s missed in terms of dollar figures.

[04:34] It’s missed in terms of the products that they use. It’s missed in terms of the strategy, which is what you do with the products that you own applied to it. And it’s just frankly, either largely ignored or handled poorly. Absolutely. You know, I think oftentimes a lot of this really goes back to a principle of prosperity, which is control. We see people tying up cash for way too long, and it really inhibits their ability to make things work for them properly. That’s correct. And it’s so valuable if you can get it right. Absolutely. So this next one of the seven deadly sins, I think we may hear an eek, maybe a scream, maybe who knows what, but we’re going to see this take place, which is paying excessive fees and paying excessive fees is one that

[05:32] is often misunderstood and misunderstood. I would love to hear your take on that. Well, you’re right about the eek or the scream. And what’s funny is it’s either misunderstood or even not looked at at all, or it’s too overly focused on to the harm of a potential investor. So let’s get clear on the specifics. So let’s say you’ve got money in mutual funds, asset center management, your typical environment that you’re paying one or 2% for per year, people have no idea the opportunity cost that is being created there. And what I mean by that is let’s say you’re paying 1% per year, you think, ah, no big deal. All that does is take my investments from eight to seven or whatever your numbers is. No, no, no, no.

[06:18] Way wrong. 1% a year is removing assets from your balance sheet. And those assets are now gone forever. And the cost to that is, as an example, that 8% that you think you’re earning for the rest of your life on that 1% of money that got removed. And so your fee is your fee, but the opportunity cost of your fee is obliterating your investment return. So that’s the first problem. Now, the second problem is people do realize, oh, my gosh, I should pay attention to my fees. Now they go crazy. And they’re looking at absolutely everything to the detriment of their potential, i.e., self-directed IRAs. Oh, my gosh, I have to pay a $200 initiation fee or a $300 annual fee or whatever it is. Oh, my gosh, that’s horrible.

[07:10] Like, why am I doing that? I should be reducing my fees. Way wrong thing to focus on. Because as an example, self-directed IRAs are fabulous, and they create so much more opportunity. Who cares that you have a tiny little $200 or $300 fee to pay every single year? So it’s an area that people really need some more education on. And then, of course, you bring in the word commission, which could be likened to the word fee, but seems to really freak people out. And somehow, in our society, we’ve gotten this message that the word commission is this horrible thing, and we should never pay for it. And you and I’ve had some fun discussions about the value of paying a commission. And again, get clear on it.

[07:54] Understand what you’re doing. Does commission have opportunity costs? Absolutely. But understand what it is and also understand what it is compared to what other things are. In other words, what are you comparing your, quote, commission to? What are you comparing your, quote, fee to? It doesn’t really matter what it’s called. What matters is, is it in line with appropriate compensation that you would want a professional to have? Is it disclosed? Is it shared? Is it talked about? I don’t mean shared like, here, I’ll give you some money, but communicated. These are the things that you should be asking as it relates to both fees and commissions. Absolutely. Now, here’s another take I’m going to add to this.

[08:44] I think there is pain on excessive fees. There’s an excessive fee you pay for ignorance or lack of information. A relative of mine inherited some money. And what they did is they inherited the money and then they transferred that money from that operating account to their personal account. By making that transfer, they then had serious tax implications. Had they just met with a competent financial person that was able to explain, it would have saved them thousands, maybe even tens of thousands of dollars just for something simple like that. So again, there is a fee that you’re going to pay for not seeking out the right people. The detriment of free, and maybe there’s a better word there, the blank.

[09:39] What is it? The blank of free, the complete disaster that sometimes trying to do things for free causes. Absolutely. So here, we’ll do this. For you listeners, if you’re in that situation, if you have something coming up and you’re not exactly sure what to do, hit pause on the podcast, send an email to hello at partnersforprosperity.com and then send that email off and then jump back in. So there we go. Now, the next of the seven deadly sins is poor tax management, or why don’t we call it the number one expense most of us have. Yes. So taxes are something that, again, as you’ve stated, we need professional help with in most cases. I mean, if you’re a W2 employee and you don’t have anything else

[10:28] going on, and especially in today’s world with the increased standard deduction, check it off. You don’t need to be doing anything. But if you have a business, have the opportunity to have a business, have real estate, have the opportunity to have real estate or any other aspects that cause for your tax situation to be slightly more than just basic W2 income, you absolutely positively want to get help in this area because there, as you said, Spencer, it’s our number one expense. There is massive room for improvement with help, help that is going to cost money, but in the end will save you money because you will pay less taxes. Oh, right. So we’ve already covered four of these seven deadly sins.

[11:14] Are you ready to hear what number five is? I’m dying to hear what number five is. Okay. We touched on this, but we didn’t really dive into it well enough. Failure to account for inflation. What is Kim’s take? Oh my gosh. Inflation is your number two enemy. So taxes, of course, are your number one. And, uh, I I’m sure that somewhere I’ve been known to say those in reverse, but it is something that while you’re working, you don’t even think about, like you literally could care less about it because one of the ways to overcome inflation is to keep working. Yet, if you have any thoughts of retirement, which frankly you should lose those thoughts, but just in case you have some inflation is going to majorly impact your situation.

[12:03] I know people today whose mortgage payment is less than their electricity bill and believe me when they bought the house, it was not that way. And so that’s an example of inflation. Just look back, you know, no matter what age you are, um, unless you’re 22 and just look back at how much you bought your first car for, or any of the things that we do to get a sense of what inflation can do and cars in particular are an interesting one because the value of them may be the same, but the capability of them is way greater and that’s not always as obvious as an inflation thing is. There’s one other issue I want to bring up and that’s lifestyle inflation. So like, we all know what the government says inflation

[12:52] is three, 4%, okay, fine. What about lifestyle inflation? That is when you’re 22, you’re happy to golf as an example, with like whatever ball you can find in whatever Lake you can dig it out of, right? You’re happy to use that ball. Uh, 10 years later, you want, uh, you know, Titleist Pro V ones or whatever the hot new golf ball is at the time. That’s now $40 a sleeve or something that’s lifestyle inflation. It’s still called a golf ball, but it costs way more. And so we must do the two things that help us avoid inflation. Number one, as I said earlier, is keep working. Number two is to put our money to work. So it’s either men at work or women or money at work that enable us to overcome inflation.

[13:40] And we absolutely want to be paying attention to it. Lifestyle inflation. That’s a great one. That is okay. This next one, number six is the one that made me most mad. I don’t know if it’s going to make you mad either living off interest. Good heavens. So this is the typical financial planner solution to again, the typical thought of retirement. So set aside for a moment. The fact that I think you scrapped the idea of retirement, living off interest puts the financial institution that holds all your principle in complete control while you get the piddly little interest that it pays. And as we know today, it is seriously piddly little interest. That is not okay. And so if you are working with a typical financial planner, and that is

[14:31] the strategy that they are recommending, I encourage you to reach out and get, if it’s not our help, get somebody that subscribes to the principles of prosperity economics to help you because you put that principle there. That is your money. You should be using it. Well, okay. That’s scary. If you use principle up, then what happens? There are strategies to solve for that problem. So get with somebody that can help you use your own principle rather than leave it in the hands of the financial institutions while you take interest only. So true. So true. So I’m going to give you a personal story of how this works. And, and I was so proud to see that it actually came from my son. So my son is 13.

[15:18] We’re in the car yesterday driving along and we’re talking. And we often talk about our finances of family and businesses and everything like that. And I explained that I’m going to be selling some of the assets, certain asset that we have. And my son goes, okay, dad, but that gives you a cash flow. What are you going to replace that cash flow with? And I thought first, I think I might be winning as a parent right here. Out of the mouth of babes. That is awesome. It was wonderful. And second, then I thought it is, it’s all cash flow. And that’s where a lot of people have this retirement delusion of living off the interest. And that’s why this made me so mad. You know, it’s the cash flow focus on it the right way and

[16:04] focus just the way that my son explained it. You know what I mean? So true. Awesome work. Well, thank you. I got lucky on that one. Now the next one, number seven is poor debt management. So this one is a toughie and I don’t know how many of our listeners are dealing with it, but they probably know somebody who is, and it’s often a function of just overspending. Sometimes of course, it could be on schools or who knows what, but it is super critical that you pay attention to your debt, that you try to get the lowest interest rates that you can and that you are conscious of what we could call good debt and bad debt or efficient debt and inefficient debt. And I trust by now, most people are clear on this definition, but high

[16:54] credit card debt for consumables is inefficient debt or bad debt. Mortgages, fabulous debt. We love them all day long. So please, please don’t be prepaying your mortgages and then making only minimum payments on your credit cards and student loans. That is a mistake that people make. We’ve seen it and I am always happy to help people get clear that that’s very, very backwards. Well, listeners, you’ve heard the seven deadly investor sends some of these things we do agree with. Some we want to scream. We didn’t, we saved your ears from hearing a scream today, but we were able to cover some things that help you understand how to live a more prosperous life. I think another thing we can do is send a link to some of the favorite

[17:41] books that you’ve written so that our listeners can read further. Would that work? Fabulous. And each book is available as an audio. So they have that to listen to as well. Wonderful. Thank you for being with us on the podcast today. Make sure that you’re subscribed so you get the next episodes that come out. Thank you for listening to the Prosperity Podcast to take control of your money and have it work for you. Visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.