In my post discussing how managing your family's money can be a full-time job, I reveal how I didn't realize my wife's SEP-IRA account was sitting on 25% cash for who knows how long. With so many accounts to manage, this mistake ended up costing us several thousand dollars in opportunity cost. As a result, I've been considering hiring a money manager to help us out.
I'd like to highlight a couple insightful comments from the post that have made me realize several things that may be beneficial to all of you doing your best to achieve financial freedom.
OlderandWiser says,
“I am bothered that your WIFE did not notice that HER SEP-IRA was not in alignment with your agreed-upon investment framework!
Perhaps the solution, instead of hiring an outside money manager, is to let your wife, the one person in your life that you can trust 100% and who has nothing but the best interest of your family at heart, take a greater role in managing your investments. Not only would that reduce your burden, it would give you peace of mind knowing that your financially hands-on wife and mother of your child would be ready and able to keep everything on track financially if the day ever comes when you aren’t able to.”
Dunny's response to OlderandWiser,
“I am in agreement that both partners should be involved in financial matters in order to be able to help with plans and decisions and to take over if required. On the other hand, “mistakes” like leaving some cash sitting around are not serious.
There will be other places where you make more than expected to more than offset the places where you make less than expected. What matters is total return and constantly increasing net worth. So you made a 20% overall return instead of 20.01% overall return that year.
You can’t always optimize everything and simplifying is probably going to make optimizing easier so you don’t miss anything serious. Family matters and health sometimes take more of a priority.“
These comments are insightful because they highlight several things:
1) OlderandWiser's comment should give us all hope that we will eventually stop making financial mistakes the older we get. I asked her whether she has ever made any financial mistakes before and it doesn't seem like she has. Her comment also reminds us to have regular financial checkups with our partners, have a clearly written will, and leave directives on future investment decisions and so on.
2) It's easy to judge someone's errors, especially when they make them public. What folks should realize is that the division of labor in each household is different and should be respected based on what works for them. I'm comfortable sharing my errors because I want to get better. Every day I realize how little I know. And to learn from others is one of the best ways to improve. Further, I know other people can learn from my mistakes as well.
3) What is considered an error is different for everyone. My error was not making my wife a potential 20% return from her 25% cash balance in 2017. The mistake very well indeed cost me around 0.1% in overall net worth performance since it's one of 17 accounts. Others believe an error is buying Bitcoin at $19,500 with a credit card charging a 25% APR.
4) If you've already reached financial independence where you no longer have to work, there's no reason to stress out about always optimizing your finances to the max.
5) Finally, perhaps the error is not an error at all, but a win.
Viewing A Financial Error As A Financial Win
Since 1999, my goal has been to build as much wealth as possible through capital appreciation. If my goal was to get to a $10 million liquid net worth, I wanted to find ways to get to $10 million quickly, not slowly through dividends. The best way I knew how was to buy growth stocks, San Francisco real estate, and build an online business.
Once I achieved my financial goal, the strategy was to shift from capital appreciation to capital preservation. The capital preservation strategy would hopefully beat inflation by 2-3X while also providing steady income during retirement. After all, once you've won the game, there's really no need taking excessive risk anymore.
I reached a baseline level of financial independence in 2012 that has since grown thanks to an incredible run in the stock market, real estate market, and our online business. As a result, it’s not a bad idea for us to dial back risk.
Instead of viewing the 25% cash allocation as a loss in my wife's SEP-IRA, I now see it as a win to be able to deploy her cash during an 11% stock market correction in February while also purchasing bonds at lower prices with higher yields. If the stock market had tanked by 50% in 2017, you could easily argue that holding cash was a win.
You see, unless our passive income dries up and our online business goes bankrupt, there will always be new cash to invest. The same goes for anybody with a job. You'll never get the perfect cash balance or the perfect investment allocation at any given time.
Therefore, don’t stress about fnancial perfection, enjoy the overall accumulation process instead. Nitpicking about every single financial detail is unneeded stress.
There's a great Chinese saying that I hope you guys follow, “If the direction is correct, sooner or later you will get there.”
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Always smart to look at the positive side of things. I think it is easy to beat yourself along the way. I try to not get hung up on small details.
There are so many twists and turns in life. I think that if you continue to be persistent and make the right moves your life will be abundant…as yours already is!
Yes excessive focus can hurt. And I love that Chinese saying. I figure I’m monitoring and putting money away on a consistent basis and hopefully that should help the future me and my family.
Yes I’ve made mistakes and the opportunity I feel like is i learned from them. I’m pretty sure I got a couple more mistakes in me to make in the future too! :-)
I’m late to the game here, so I’ll just say that Olderandwiser’s comment makes sense. Dunny’s response to Olderandwiser makes sense. And your response to Olderandwiser and Dunny’s responses makes sense. Oh, and I love the Chinese saying you shared. Cheers, my friend.
I’d say that barely registers as a mistake, especially when you have a portfolio as complicated as yours. It might just reflect the level your at in your investment journey – most investment mistakes are far more ‘negatively impactful’ on the portfolio, such as being greedy and doubling down on a terrible investments, or panicking and selling out of good quality companies.
I do believe in continuing to optimize however. We keep all our funds in my wife’s name and she needs to sign off on any of my investment recommendations before she executes the transaction. Has been a great way to get us on the same page investment-wise, and prevent me from getting overconfident or too excited with a potential new investment.
Howdy Frankie, thanks for sharing. I’d love to read more thoughts from you on how you manage raising four kids!
An amazing wife and some good flexibility in my work go a long way to helping!
I think your mistake would fall into the category of “oversight”. This is a much better category of mistake than investing the 25k in something you didn’t understand, or something completely speculative (crypto currencies). Even our mistakes of omission can have huge lost opportunity costs. Like Buffett talks of mistakes of omission as, “Ones when we didn’t invest at all, even when we understood it was cheap”. I would say if you knew a piece of real estate was perfect and didn’t pull the trigger using the 25k, that would be way worse too. Glad you turned it into a win though!
I don’t see 20% cash as a financial error. My husband has 50% cash in his investment portfolios and he doesn’t see it as a financial loss. I have about 15% myself. I see it as having ‘troops ready to be deployed’ when the market hemorrhages again.
Agree! Sometimes being a bit forgetful or letting a cash balance accumulate means you can buy in at a lower price. I did that recently myself :).
Indeed. One can really tell themselves anything and convince themselves of why whatever money choice they make is right. Everything is always perfect in hindsight.
Oh man if I made all my financial mistakes public, people would be BAFFLED by the fact that I’ve reached FI (just not RE yet). This one wouldn’t even a blip on my radar! I’d be elated, “Oh cool, I found some forgotten cash that I can now deploy into ROST, KHC, and KMB. Sweet!”
I love the quote you wrote at the end, “If the direction is correct, sooner or later you will get there.” I am so slow at a lot of things that I wish I had the energy and momentum to do faster. I usually give up though it just takes me time to get things done so that quote fits well with me. ;)
Admiting your mistakes gives you credibility. If you made the perfect decision all the time I probably would call BS and not read your articles. I’ve done thee exact thing you did in the past. Keep up the great articles!
Right on. You’ll enjoy this post then! https://www.financialsamurai.com/perpetual-failure-the-reason-why-i-continue-to-save-so-much/
I like the “going in the right direction” saying. You don’t have to get everything right as long as you’re going in the right direction. Mistakes are inevitable. We just need to recover from it.
I’ve made plenty of financial mistakes, but I don’t think I turned many of them into a win.
I invested in my friend’s company and it went bust. I wrote that off to get a tax deduction. That’s probably the biggest one.
The bigger question is, are you guys still friends? And what is your friend doing now for money?
I passed on buying Oracle at $2.00/share in 1988, it went on to split 7 times in 9 years. More recently I sold a stock at $52 making a nice return but it sits at $76. Mistakes that have finally taught me I need to use a system for investing in any stock or index, instead of how I feel about it. I pick the investment but the system tells me when to get out or in. That and a good position sizing formula (2% of funds/ATR) have been helpful. I also wire money out every month rather than the reverse, we are at 9 years of our Equities bull market; you put it best once Sam -“…cash gives you options..”
Ah, the good ol days when you could buy everything for 99% less! :)
That’s the thing I worry about for my son in 25 years. He will say, “Dad, why didn’t you buy that house for only $3 million in 2020? So cheap!”
It’s funny to say now, but inflation is too powerful a beast to combat.
I made this mistake when setting up a roll-over IRA. I checked in, and saw a flat line for performance for 3 months. Within 6 hours the money was invested appropriately!
Also, while my husband does bills, I took over all larger investment and financial management a few years ago. I was surprised how much I enjoyed it! I wish I had been more involved earlier in our marriage. We now check in ever few months, and have a lot of fun with it.
Great and timely post. I wanted to add (which I’m sure you’ve addressed on the blog couple of times before) that recognition and guilt of mistakes is what pushes change. A lot of the time that change is a positive one and it pushes you in the right direction. So a financial mistake at the cost of % decreases to your net worth is a small price to pay for self actualization.
Whenever I make a money boo boo…that’s what I tell myself. Life is for lessons.
I just laugh at these posts where people act so self-righteous about such an “egregious” error as leaving money in cash by mistake instead of investing it. I too made a similar mistake. At the end of a tax year, I rushed to put 6K each in mine and my wife’s IRAs with the intent that I would invest the money later. Each quarter I look at all of our statements and I just missed the fact these were sitting in cash for almost a year. Big deal! I ultimately found the mistake at year end and invested the money.
I wish this was the first and last investment “mistake” I make but it won’t be. I’ve been investing for about 35 years and while I can focus on all the “mistakes” I’ve made, I can also step back and feel good about the bottom line and the FI achieved for me and my family. I’m at a point in my life now where second guessing myself no longer seems that important and it certainly isn’t worth beating myself up over something that is really pretty insignificant in the long run.
Sam, with all of your success, you’re entitled and can easily withstand a few oversights here and there ;)
Danka. My only wish is that other people who step on my stake share some of their own too.
First, your “mistake” is really irevelant to total net worth and returns. I need to remind myself of that when I look at a bond fund I hold that represents about 1% of my net worth. I started it thinking I wanted to build positions as interest rates rose but find myself fretting about the small loss it has recorded this year. One good day in my equity investment portion of my holdings makes up for even a 100% loss of the bond fund. SO why do I care. I think you are really on to something about the wasted “angst” of trying to optimize everything. Would be much better off filling the Chinese proverb about being in generally correct direction!!
One of my best investments was a “mistake”. Turns out the recreational/farm land I bought flooded and wasn’t as useable for my intended purpose. Turns out the value of land as conservation/public hunting access far exceeded my original purchase price and I was able to sell it to the government and also do good by creating more permanent public recreation opportunities for the community.
“If the stock market had tanked by 50% in 2017, you could easily argue that holding cash was a win.”
FS! That could never happen! That is crazy talk!;-)
Only in 2018 and beyond! Hold on to your hat!
Perfect is the enemy of good enough!
Loved the title. In 2005/2006 in the Phoenix area I ended up selling real estate that was quite profitable. Also in 2006 I took that handsome profit and bought land in an area “primed for growth”.
Fast forward to 2018, I’ve now owned this land, free and clear, for the last 12 years. I’ve beat myself up over such an “investment mistake” as this article is titled, however, area planning now shows two new freeways within a stone’s throw from the property. Still several years off, but it will happen and I will continue to stay the course.
Great article as always, thanks!
As a recovering financial perfectionist, I can relate. I enjoy managing our family finances but found that I had to let go of a few things to improve my life. This year, I’ve dialed back on travel hacking–managing the different cards and annual fees wasn’t worth the additional stress. I know we’re leaving money on the table, and we may return to the credit card points game in the future, but my time could be better spent elsewhere right now.
My biggest investment mistake was investing in a company that eventually went bankrupt. The company still exists today with the same CEO as when they entered bankruptcy. The pre-Bankrupt company was primarily owned by a private equity firmed that milked the company dry. There was no real investment win here, only a good personal lesson. Eventually used those losses tax wise last year to harvest other large investment gains.
You should calculate your net worth periodically. We do a personal financial statement each month similar to that described in Gary Keller’s Millionaire Real Estate Investor book. So it would have been easy to spot if an account hadn’t changed very much over a period of time.
With 17 accounts, it really isn’t that easy to spot. It could look like it’s just underperforming, or performing different due to a different strategy in that account. Gotta really look into the accounts!
“Perfection is the enemy of the good”~Voltaire
The constant obsession with maximizing everything can blow everything else apart if taken to extremes. As I stated in the last post KISS. That means maximization is less important then consistent good performance. It’s why I favor a few index fund investment.
Good reminder to both check investments and check in with my spouse. For now I am building wealth and still working, so going 100 percent in growth stocks works for me. In the future we will see.
One thing I am currently debating is paying down two loans with 0 percent interest. Sure I could make money in the market, but if there is a crash then that money is gone. Paying down the debt is peace of mind. That is one reason I also paid down my 3.2 percent student loan instead of investing in the market. I figured I am ok w a lower return when I would know the debt was gone. Oh well… To each person finding their own path to wealth and a good night’s sleep.
I have never regretted paying off debt. Ever.
But I recommend following the FS-DAIR framework for debt payoff and investing. https://www.financialsamurai.com/pay-down-debt-or-invest-implement-fs-dair/
We paid off 8,000 on a student loan that was below 3% a couple years ago. We’d had a “worst possible scenario” year a little before that, and so paying off any debt was very important to me. My husband didn’t want to, but he gave in. Now, I wish we hadn’t paid off that loan. We could have used the money on another investment that would have yielded greater return. But, there is something to be said about the peace of mind (probably a lot). I don’t view it as a major error, though, just something to learn from.