Broker Check

How to Avoid 15 Common Financial Planning Mistakes

In this episode, Royal Standley goes through a list of 15 common financial planning mistakes that he has encountered in working with clients over the years. Along with discussing the root causes of these mistakes, he also shares tips on how to avoid them, or even fix them if you’ve already committed the mistake.

Episode 53 Transcript

Intro: Royal Standley of Oregon Pacific Financial Advisors, offering Securities through United Planners Financial Services, Member FINRA, SIPC, guides clients with empathy in discovering and reaching their financial goals, and creates financial plans for clients so they can live their life by design. In these episodes, he relates his expert financial insights and discusses timely topics. Royal strives for excellence and has a passion for sharing his knowledge and supporting his community. Now, onto the show.

Aric Johnson: Hello and welcome to Life by Design with Royal Standley of Oregon Pacific Financial Advisors. Royal, good afternoon, sir. How are you?

Royal Standley: I'm doing well. How are you doing, Aric?

Aric: I'm doing fantastic. I'm pretty excited about today's topic because it's not going to be too meaty. It's something that I think a lot of these things that we're going to talk about are going to resonate with our listening audience. And you really, you want to kind of introduce the audience to common financial planning mistakes, correct?

Royal: That's right. That's right. There's, there's a number of things I see in my day to day, sitting down with new clients, just some basic mistakes or, or ways of thinking they might have that might be holding them back when it comes to their own financial plan. So, these are a lot of the things that we will kind of help and coach around with individuals and couples when they come in to sit down and start that financial plan.

Aric: Yeah, absolutely. So, one of the things that I did notice, you sent me the list ahead of time, and I'm going to read off the about 10 to 15 items. I'm going to read them each off. And then you're going to kind of describe them or talk about them and talk about how this happens or what people can do to avoid it. But I've noticed that a lot of these things on this list you've actually covered in depth in other podcasts. So, I'm hoping that maybe we can list some of those podcasts in the show notes so that people can kind of even click on the podcast directly to get a deeper dive into some of these. For instance, one of them is going to be, we'll talk about in a minute, not having an estate plan and you've done that on a podcast, more in depth. So I'd like to be able to link those so that the listening audience can go and click and maybe, Oh, that's one that I really need to think about and then go find that. Is that something we can do?

Royal: Absolutely.

Aric: All right. Fantastic. Well, let's get started. Number one on the list is focusing on past performance of the market.

Royal: Yeah, I think this is one where, I hear quite often from, from people who are coming in saying, Hey, how did you do over the last 10 years? Or, you know, I set up my 401(k). I just looked at what did well over the past 10 years, or, you know, what did the best last year? I think there really is this fallacy of, well, if something was good yesterday, it’s going to still be good tomorrow. And sometimes that is true. Sometimes that can, you can have that carry on effect. But oftentimes what we see is what worked yesterday doesn't always work tomorrow. So that's where we want to be very careful when it comes to investing in the markets and not just in the stock market, but also in the bond markets. Making sure that you're, you're staying diversified and not just trying to chase performance of what was good yesterday. We really want to kind of dig into everyone's investment strategies and make sure that they're covering their bases from a diversification standpoint. And then also from a risk standpoint. Just because a fund did phenomenally last year, doesn't mean it's a fund that you should put all of your eggs into going forward because oftentimes there's very specific reasons, especially after a financial crisis, like we saw in 2008 and last year with COVID that there's, there's special circumstances that probably aren't going to repeat themselves year after year.

Aric: Yeah. Yeah. I’m just thinking about Zoom top of the, top of my head as one of them. Everybody had to switch to online meetings. Of course, the online meeting platforms are going to do well during that time, but that was because there was a pandemic, you know? So that, that makes perfect sense, Royal.

Royal: Yeah. And those sorts of stories, you know, they, they may continue on, they may not. It all just depends, but that's why we really want to make sure that we're factoring in not just where the markets were, but where, where we see them going.

Aric: Yeah, be forward focusing. Great.

Royal: Yeah, exactly.

Aric: All right. Next one is buying high and selling low. Well, that just sounds like a bad idea.

Royal: It is. We see this all the time. Something has done well and, and this is going back a little bit to focusing on past performance. Something did well last year, and what we're seeing for instance is, there are some very focused technology funds that did, you know, a hundred percent or more in returns last year. And now what we're starting to see as a shift away from those big growth names. And there was high flying growth names back to more of a value tilt in the market. And so, I'm sure there's a lot of people who are buying into those funds, seeing those, those reports from Morningstar or Kiplinger saying, wow, these are fantastic funds. Just because they're high, we should get into them, continue on that performance. Oftentimes, that is a recipe for disaster and by buying high and then having the markets fall on them, selling low, kind of the exact opposite of what you want to be doing in the market. We really want to be able to buy low and sell high. That's the main way you make money in the market.

Aric: All right. Third one is having too much or too little risk.

Royal: So, we, we see that quite often. And honestly what I'm seeing now more than that ever is people having so much money sitting in cash. I'm talking to people who maybe sold real estate, sold a business or inherited money, and, and they're just too terrified to do anything with that. That's a, that's a dangerous scenario,

Aric: Mm-hmm.

Royal: Because yes, it's, it's very safe to see, okay, I have this much money in the bank and that makes me feel good. However, what you don't see is the loss of purchasing power that's taking place when you don't have enough of your money invested. On the flip side there, having too much risks, especially as you have life changes coming up, like retirement, can also be a little bit of a recipe for disaster as well. And we see this also in, in, in real estate as well. People who are terrified of maybe buying that first home. And then on the flip side, people who are over-invested in real estate and really have no other assets outside of real estate. We saw that go wrong in 2008 with the real estate crisis. So that's where we, once again, want to make sure we have a balanced, diversified plan when it comes to your investments.

Aric: Yeah, absolutely. Now I mentioned this one earlier, not having an estate plan.

Royal: Yeah, and this is a big topic. An estate plan really is the plan you have put down, and this is important, on paper,

Aric: Mm-hmm.

Royal: For what happens when you pass away. You can do this through a will or a trust or the primary ways, we see people do that, or through beneficiary designations on life insurance and IRAs. Not really taking that seriously or thinking I have plenty of time to get that in place, really just a recipe for disaster and a lot of work for the people you leave behind. We see this quite often with wills not being updated for 15, 20 years. We see this sometimes with beneficiary forms not being updated to the current spouse which, which, which is always a scary conversation to have with that current spouse. What do you mean his ex-wife is getting everything?

Aric: [noise of displeasure]

Royal: So, yeah, we want to make sure you have an estate plan and we want to make sure it's up to date.

Aric: Yeah, that would be an ugly conversation to have. That would not be, not be fun. Next one on the list is improper insurance coverage.

Royal: Yeah, this is, this is another big, big topic that we sit down and look at. We're not just talking about life insurance or long-term care insurance or those, those are very important insurance coverages, but also just getting into a liability umbrella protection. Making sure that you have the proper limits on your homeowner’s insurance, on your auto insurance, and making sure that if there are risks out there that you can pay an insurance company to take on, that you're definitely doing that and properly structuring all of your insurance coverages.

Aric: Got it. All right. Next is not considering taxes.

Royal: Yeah, we see, we see this quite often and some people who come in doing their own financial plans or trying to do that Excel spreadsheet is not factoring in the, the impact of taxes. And I think the other piece of this, especially since we are his at historically low levels of taxation is not expecting taxes to go up in the future.

Aric: Mm-hmm, mm-hmm.

Royal: I think that's a very real possibility based on where we're at right now. So just thinking that well, taxes aren't going to be a factor I need to consider, or that they won't go up in retirement, kind of two recipes for disaster there. So, we always want to take into account those, those tax situations to make sure that there is enough left over for you to you know, buy your groceries and have a little fun.

Aric: Absolutely. All right. And I remember you doing a full podcast on this one, not setting goals.

Royal: Yeah. Yeah. This is an interesting one. You know, I'm, I'm, I'm a planner at heart, so there there's always a list of goals or, or direction I'm heading. So not setting goals is something that I come across, you know, fairly often. And it baffles me because it's just not my personality and that's really just not having kind of, at least the framework of a plan for the future.

Aric: Mm-hmm.

Royal: You know, when do you want to retire? What, what, or when do you want to have that ability to retire? How do you want to plan for your kids’ college education? What are the other things you want to accomplish in life, whether it be travel or, you know, learning a new language, whatever that might be? We want to make sure that you're setting goals and not just letting life kind of take you by chance to somewhere you may not want to be going.

Aric: Yeah, that makes sense. All right. Number eight is not tracking spending.

Royal: Yeah, and this, this is what I personally am challenged with. I tried to use a budget. I'm so-so with it. You know, oftentimes what we see is, especially people who are working and have good jobs, there's really not a need for them necessarily to have a budget or live by it or track how much they're spending on a month-to-month basis. But as you get closer and closer to retirement and shifting onto more of a fixed-type income, it's important to know what your outflow is each month. So, this is one where if you're adverse to a budget or something like that, we sometimes recommend what we call a spending plan, where instead of trying to budget every dollar, instead just give yourself a number that you're going to work from. You know, it could be, I'm going to spend $5,000 this month and then just see if you can stay within that. That's one way of being able to, to track spending without necessarily having to sharpen the pencil and do it budget.

Aric: Mm-hmm. All right. Kind of tying in with that is not saving.

Royal: That's right. That's right. And, and let's even talk about this more, not saving early enough. You know, we, we do a lot of work with 401(k) participants and people just getting started, do a lot of work with plan sponsors who run a 401(k) for their business. And it's baffling how many people are really just putting off the whole concept of saving. Thinking they can't do it, or it's scary, or it's hard. Getting that habit of saving in place early is just so important. And also if you're spending everything out of your paycheck, it’s gotta be a hard way of planning for retirement. So, you do need to kind of start putting away the, those acorns for the future and have a savings plan in place. And that's something that we help some of our younger clients do is come up with strategies of, you know, how do you get your Roth IRA funded?

Aric: Mm-hmm.

Royal: How do you make sure you're taking advantage of your full 401(k) match? How are you saving up for that first home or that next investment property? So that's something that we do quite often with people is coming up with strategies that, that don't hurt too badly to start saving for those things that you want in the future.

Aric: Got it. All right. There's, there's a couple here that kind of fit together, investing without a strategy or even worse, investing with your emotions.

Royal: That's right. That's right. So, there's a lot of different and things you can invest in. And it seems like every day there's something new coming out. There's a new technology. There's a new blockchain cryptocurrency that you can invest in. Now there's NFTs or non-fungible tokens. You know, there's always something new out there. The real question I would have for anybody is how does it fit into your strategy? How are you allocating your resources to these things? You know, are you just buying one stock? Are you buying, you know, an index of stocks? What's your strategy for diversification? For risk? And then ultimately keeping emotions out of your investment strategy.

Aric: Yeah.

Royal: You know, kind of going back to the, to you know the, the second topic, buying high and selling low, when you're investing with, with emotions, you can kinda, you can get blinded to what's happening around you. When you see something going up in value, you, you just say, Oh, I've got to get in there before I miss out on this opportunity. Not always the best way of investing.

Aric: Mmm.

Royal: Same thing with seeing, you know, a, a stock or a mutual fund go down in value, just getting afraid and jumping out of it without really having a strategy around why you own to that in the first place.

Aric: Yeah.

Royal: So, we want to try to take the emotions out and put the strategy into our investing.

Aric: Perfect. I know that everybody would like to, but trying to beat the market is not easy and that's, that's a big mistake.

Royal: Yeah. Yeah. I mean, really, tying everything back to one index I think is a dangerous proposition. You know, we see a lot of people just benchmarking to the S&P 500 and that's, that's a good index if you're looking for non-diversified, large cap US portfolio. But if you're looking for a diversified portfolio that, you know, has a certain level of risk management in it, probably isn't the best index to be linking back to. You know, there's also the strategy of, you know, just trying to index towards a market which is, which is a viable strategy as well, you know, along with active management. So, you know, that, that whole idea of looking for a manager who's beaten the market, you know, it goes back to kind of our first category of just focusing on past performance of the markets, looking for that mutual fund that has that outperformance. It's very hard for fund managers to do on a consistent basis. So, you want to be very careful that you have realistic expectations about your investments.

Aric: Yep. All right. This next mistake I think a lot of us have done at different times in our life, but living beyond our means.

Royal: Yeah. And that's when we see quite often when you're, you're not tracking your spending and you're not saving. One of the best way of making sure you're living below your means is to start saving. Not having a plan in place, not having a goal you're trying to save for, and not really seeing what the future may hold are all kind of contributing factors to living beyond your means. Now, sometimes, there's definitely points in people's lives where it does take every single dollar to make it through the month. And, and then some, but once you're making you know enough to kind of make it through the, the month-to-month, making sure that you are putting away some for the future and not living beyond your means, not living on credit cards, just really one of the most basic and fundamental things that we see for people who are financially successful and then financially independent.

Aric: Yeah. Got it. All right. A little bit, a little bit more of a meaty subject here, but not diversifying your investments as a huge mistake.

Royal: Yeah. Yeah. And, and I see this in two ways right now. Number one, people who are overweighted in large cap growth. That's been really the story of the last 10 years, one of the best performing asset classes out there. It's done very well. And I tell people, Hey, you, you, you haven't been hurt being non-diversified during that period of time. But it's probably a good idea with everything happening in the world to make sure that you have a diversified portfolio. That's tied back to the amount of risk you're comfortable with. You know, if you were invested just in large cap growth over the past, you know, let's say 10 years, you probably had a good run, but I'm sure there's been a lot of things that have changed in your life as well. And you might not realize how much risk you're taking in that portfolio. The other thing I see is people who, who just want to be invested in things that they're comfortable with. And I think you should have some level of comfort there, but I see a lot of people just putting every dollar back into real estate and that can be dangerous.

Aric: Mm-hmm.

Royal: You know, we, we've seen that happen before. Real estate has been a very good long-term wealth-building strategy, but we want to make sure that there's other investments there that can help diversify you along those paths.

Aric: Royal, I'm going to tell you, this next, this next mistake, I've been guilty of in different parts of my life, but procrastinating is a big mistake.

Royal: Yeah, procrastinating is a problem, I think everybody faces if not all the time, from time-to-time at least. And, and really that just comes down to, I think not having, you know, a goal in place that's powerful enough to kind of motivate you to take that first step. And oftentimes what I see, you know, in my own life with procrastination is it really is just taking that first step to start making a plan to get a little bit of momentum going towards the future. So that's why we really encourage people to reach out, you know, have that first appointment with a financial planner and get that plan rolling. Don't keep putting it off. You know, one of my favorite sayings is, you know, the best time to plant a tree is 20 years ago.

Aric: Mm-hmm.

Royal: The second-best time to plant a tree is right now.

Aric: Yeah.

Royal: So, procrastination, you know, it can, it can take years off your life, but we, we really, truly want people to start taking that first step and we have the tools here at Oregon Pacific to help you get going in those next steps and build that financial plan.

Aric: Yeah, absolutely. This has gone by quick. It's kind of in rapid fire for you. The last one, number 15, is not planning for the worst-case scenario.

Royal: Yeah, I think with COVID, before COVID, I think we probably had a lot of ideas of what the worst-case scenario might look like. We, we, that's probably a completely different conversation,

Aric: Mm-hmm.

Royal: Post COVID, but yeah, really looking at, you know, what happens if there is a death, a long-term care event. A natural disaster. We really want to try to take a look at the entire life plan and financial plan for our clients and make sure that they're addressing those things that they can have control of. And then also having a plan for those times when you just lose control. And we sent, we saw that with COVID where in a lot of industries, they just didn't have a choice on continuing business. And looking at the, the airlines, the restaurant business and anybody in travel or tourism, these things can happen. I don't think anybody's immune. So, we want to make sure that we have a plan in place for really whatever can come. And that's, you know, one of our favorite things to do is making sure that our clients have a full plan in place that they're working towards the outcomes that they want and desire. But also if something doesn't go right, we've done the planning to make sure that things are going to be taken care of if the worst-case scenario does happen.

Aric: Yeah, absolutely. And on a couple of these things, you know, I know that your team has helped many, many people do this. You know, getting started as one of the biggest ones, just getting started, making, taking that first step. So Royal, people that are listening to this, I know they're going to be able to access some other podcasts that you went more in depth on these subjects, but if they want to just cut out the middleman and call you directly, how do they get ahold of you and your team?

Royal: Yeah. Give us a call at (541) 772-1116 or you can just visit our website and schedule appointment at opfa.com.

Aric: Fantastic. Royal, any closing thoughts for today?

Royal: Yeah, I think the biggest closing thought today is, you know, we have seen all of the different mistakes people can make when they're doing their financial plan. And on the flip side of it, we know how to get past those mistakes, come up with ways of building that financial plan around any number of, kind of, kind of thinking or concerns there. So, give us a call and we're happy to help and walk you through building the financial plan that you want for your life.

Aric: Yeah. And I just want to say this, I've known Royal for quite some time now and, and worked with him on this podcast and just learned a ton from him. One thing I can tell you is that if you've made these mistakes, any of these mistakes, there is no judgment. Just reach out because him and his team can help fix mistakes that have been made and not just, you know, helping people to avoid them. They can actually help people fix those mistakes. So don't be shy to give him a call. Royal, thank you so much for your time today. It was a pleasure. And of course, our last thank you goes to you, the listening audience. Thank you so much for tuning in and listening to the Life By Design podcast with Royal Standley. If you have not subscribed to the podcast yet, please click the subscribe now button below. This way, when Royal comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. And again, this is a great one to share. It answers 15 quick rapid-fire mistakes that people make. And I think all of us can identify it with at least one or two that we've done on this list. Share this with somebody that, that needs to hear it. Again, thanks for listening today. For everyone at Oregon Pacific Financial Advisors, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.

Outro: Thank you for listening to the Life By Design Podcast. Click the subscribe button below to be notified when new episodes become available. The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice.

Individual needs vary and require consideration of your unique objectives and financial situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.

Advisory Services offered through Oregon Pacific Financial Advisors, Inc. Securities offered through United Planners Financial Services of America, Member FINRA and SIPC. Oregon Pacific Financial Advisors, Inc., and United Planners Financial Services are independent companies.


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Please note that discussions in these shows are for educational purposes only. Information presented should not be considered specific investment advice or a recommendation to take any particular course of action. Always consult with a financial professional regarding your personal situation before making financial decisions. The views and opinions expressed are based on current economic and market conditions and are subject to change. All investing involves risk, including the potential for loss of principal. Securities offered through United Planners Financial Services (UP), Member FINRA/SIPC. Advisory Services offered through Oregon Pacific Financial Advisors, Inc. (OPFA). OPFA & UP are independent companies. Neither OPFA nor UP offer tax or legal advice.