My Money Mistakes and Regrets

My Money Mistakes

My Money Mistakes and Regrets

Hello folks! Thanks for visiting The Green Swan. Earlier in the week I posted on the money mistakes we make by decade which shared some commentary on a recent article/podcast in the Wall Street Journal. And today I have a confession to make…I’m not perfect…I know that probably comes as a surprise, but I too have made mistakes with my money that have cost me. And today I’m ready to come out of the closet and share my money mistakes and regrets.

Before I get into my mistakes though, I do think I’ve done many, if not most, things right in managing my personal finances (a humble brag). But I guess I’ll let you be the judge of that. I can’t complain too much or cry victim to any terrible scams or injustices. I didn’t rack up tons of consumer debt out of college. In just 10 years, my wife and I have been able to amass over $1 million net worth which serves as a testament to our success. What are some of things that I think I’ve done right? I’ll highlight those for you as well:

What We’ve Done Right

Nothing too earth shattering or difficult here…

We Invested Early – I started investing my senior year in high school with money I made by working summers at a local print shop (yes, I had tons of papercuts…and it sucked) and other part-time summer jobs. I began dating my wife after my freshman year in college and with money she too had made with summer and part-time jobs, I was able to convince her to open her first Roth IRA account before she began her junior year. Needless to say, even though it wasn’t much money, investing early has allowed us to get our money to start working for us and to get the compounding started.

We Invested Often – We both made it a habit to tuck away and invest any spare money we could. We were comfortable with a “bare-bones” emergency fund and living the frugal life which allowed us to maximize investments.

We Invest to Win – I’ve already gone over this in fairly good detail, but we are fully invested in equities since we are long term investors and this has consistently been the best asset for long term growth. While it hurt quite a bit during the 2008 recession, we stuck with our investment strategy and it paid off.

We Diversified – Diversification is important, but it is also fairly easy with the help of just a few mutual funds. For more detail on where and why I invest in mutual funds, check out my portfolio composition.

We Took Advantage of Free Money – By this I’m referring to employer contributions to our 401(k)s. Both our employers have been generous in offering matches to certain degrees, which we took advantage of right away to the fullest extent.

We Were Careful with Debt – This may be the most important one, but we were cautious with debt. We both worked part-time in high school and college and also had the fortune to have our parents pay for some/most of our college. But even after college, we avoided the temptation of financing a nice new car and we also taught ourselves how to use credit cards appropriately.

What I think I’ve Done Wrong

Money Was Everywhere – When I first started to invest in mutual funds, I bought the mutual funds directly from the funds online platform. For example, when I bought an Oakmark actively managed fund, I did so directly from their website, and I did the same for Marsico, Vanguard, and others. This meant money was everywhere AND transaction fees were higher rather than if I would have just bought them through one low-cost brokerage firm like TD Ameritrade… Of course today we have the added benefit of Personal Capital, a free service to help track investments as well as income and expenses (check it out today if you aren’t already using it…it is great!).

I Didn’t Keep an Eye on Fees – Leading in from the mistake above, I was not focused on fees…particularly transaction fees. While I don’t trade much at all and I make just a few contributions per year, the transaction fees can add up. After my initial mistake of having money everywhere, I aggregated my accounts at Vanguard without realizing they charge an unusually high transaction fee of $35. As mentioned above, TD Ameritrade and other low-cost brokerage firms are much more economical.

Not Maximizing Tax Advantaged Accounts – In 2014 I was just coming around to the idea of retiring early and ultimately I joined the FIRE bandwagon (Financial Independence / Retire Early). I was still in the early stages of understanding FIRE, but I failed to realize that I actually can access “retirement accounts” before age 59 ½ (as the Mad FIentist eloquently explains in this post and I have read elsewhere as well). Before having this knowledge, though, in 2015 I cut my wife and my contributions to our 401(k) plans to the amount necessary to receive the max employer contribution in order to put any excess in a taxable account which I could more easily access in retirement (or so I thought).

Thankfully it was only for 2015 as I was able to realize and correct my mistake; there are in fact a few avenues to access retirement funds early without paying a 10% penalty (withdrawing contributions is penalty free and the 72T SEPP method, etc.). This mistake resulted in approximately $25K less in our tax advantaged accounts than if we would have continued to max out our 401(k) contributions…bummer!

Regrets

There are a few other things I’ve done that I wouldn’t consider being a money mistake, but something I regret, may potentially regret in the future, or wish I would have handled differently.

Roth vs. Traditional IRA Contributions – In recent years, we have moved up a rung or two on the federal tax bracket to the point where, in all likelihood, it will be higher than our taxable income in retirement (basically just expecting investment income on our taxable brokerage account and withdrawals from traditional retirement plans for income in retirement).

Therefore, I probably should have elected for my wife and my contributions to our IRA plans to a Traditional IRA account rather than to our Roth account. Granted, there are income limits to Roth contributions and I even went the extra step to complete a “backdoor” Roth contribution without realizing it may be a better tax move to go the Traditional route. Even though there are benefits to Roth’s such as being ideal for passing wealth to heirs and the benefit of not having to worry about how high taxes may be in the future, I think in 2017 I will be electing to make our IRA contributions to Traditional accounts.

Ooops…

Heavy Usage of Actively Managed Mutual Funds – Early on I bought into the benefits of actively managed mutual funds rather than index, and elected to split my investments evenly between the two. While actively managed funds are faux pas to many folks in the personal finance blogger crowd, there is a reason I’ve categorized this as a regret rather than a mistake. My actively managed funds have actually performed well and justified their higher expense ratios, as I previously detailed in the linked post. However, I’ve come to realize that I don’t need to take the added risk of investing in actively managed funds to meet my goals, and therefore I have since scaled back my allocation to these funds and invested more in passively managed index funds.

I Never Focused on Tax Loss Harvesting – Similar to the others above, this is not a critical mistake, but something I wish I would have focused more on. I’m sure I could have captured some tax benefits during the great recession of 2008 and at other times where the market has dipped, but I never knew much about this or paid attention closely enough. I’ve begun to pay more attention to this and hope to do better in the future. And nowadays there are great tools available to easily analyze the ability to tax loss harvest including with the brokerage firm Betterment.

Conclusion

So there you have it! I’ve aired my dirty laundry. While I’ve done fairly well and I did number of things correctly, I certainly haven’t been without my fair share of money mistakes and regrets. So how about you?

Thanks for taking a look!

The Green Swan

 

 

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Liz@ChiefMomOfficer

The ROTH vs. traditional decision is one I’ve found most tricky .Back when I was in my 20’s I contributed a bit to the ROTH, but mostly to my 401k. I didn’t know whether my income was going to increase, decrease, or stay the same over time. Nowadays with my income it makes the most sense to contribute to the 401k, but looking back I should have done more into the ROTH in my 20’s. Oh well, hindsight is 20/20.

JW

Yes that is always a tough decision. Going forward I will be contributing solely to my Traditional IRA and 401k accounts, no more Roth for me. Thanks for sharing, Liz!

Go Finance Yourself!

Investing early and often – one of the biggest keys to success! As for Roth vs Traditional 401k, I probably stayed in a Roth a little to long looking back on it now. Not a big deal as the last time I contributed to a Roth I was probably in a comparable tax bracket to what I’ll be in at retirement. It’s easy to just keep contributing and not really think about it after you set it up though.

One of my regrets is not starting investing outside of tax advantaged accounts until recently. I’ve always been focused on growing my 401k balance, but after recently being introduced to the world of FIRE, I’ve kickstarted my investing in after tax accounts. Sure I can access my contributions to a Roth and there are some other rules that allow you to access retirement accounts a little early if you are retired, but I want the flexibility of having after tax accounts at my disposal.

I’m currently maxing out my 401k. We could do the same for my wife who teaches and has a pension, but we’re electing to boost our after tax saving instead. Currently at close to 40% of after tax, after 401k income, and working our way towards a rate of 50%.

JW

Good point on it being too easy to keep contributing to a Roth once it’s set up. That was my problem, I guess my habits were a little too engrained.

I see, so you are taking the same route I did in 2015. I don’t disagree with that entirely, it is nice to have those accounts established and provide you some flexibility when entering retirement.

Thanks for the great comment, GFY!

Full Time Finance

The biggest one for me would be way back in the first 2 years of my career. I graduated with a sizable student loan debt. I became all consumed with payin it off and didn’t contribute to my 401k at least enough to get the max. The debt was much higher rates then they are today and there was psychology at play, but I still would have done better to delay just a little of the payoff by achieving the match.

Roadrunner

After reading your “mistakes” I believe overall you did very good. I had some much bigger ones earlier. Probably the biggest one was trying to get rich fast. I tried a lot of things, like active stock trading based on technical analysis, turbos, FOREX trading etc. The result? No, I’m not writing this from the Bahamas 🙂

Amanda @centsiblyrich

You’ve done far more right than wrong, GS! We also invested in the Roth for several years and, in recent years, made the switch over to traditional.

By far, our biggest mistakes were taking on too much debt and not investing more in our 20’s and early 30s.

JW

A very common mistake, indeed. You folks have done marvelous though in turning it around and getting on the path toward a comfortable retirement, so kudos to you!

Thanks for sharing, Amanda.

FinanciaLibre

Well, y’all have basically aced this personal finance exam!

I think it’s cool you’ve identified things you might’ve done better. But those “missteps” are ultimately such minor things. And the “oops” regrets (e.g., IRA optimization) are like icing-on-the-cake kinds of considerations. Nice work, Swan.

For us here in Libreland, I guess there are some things that, in hindsight, we might’ve done somewhat differently. But I think we’ve been fortunate enough to have good outcomes to this point. Like y’all, though, we’re always looking for ways to do better and optimize. Here’s to getting better!

JW

Yes I admit there really wasn’t a huge mistake or regret for the Swans. I suppose that’s why we are planning to comfortably retire in our 30s. But still good lessons of dos and don’ts for others on their journey.

Sounds like you’ve aced the test too, kudos to you!

Thanks for the comment, Libre!

Financial Panther

My big mistake was definitely not getting started early. I didn’t make my first investment until I was around 27 years old (I’m 29 now…). My issue was that I couldn’t understand what I was doing. I’d even read the Automatic Millionaire back in college, so it’s not like I had no idea what to do, but the entire concept of actually investing was too confusing for me to understand. I really think that if robo-advisors had existed back when I was 19, I’d probably have put money away at a much earlier age, just simply based on the ease of it.

JW

A very common mistake, indeed, FP. I agree that the robo advisors to simplify things quite a bit. Hopefully that is helping the newly graduated get a start.

Thanks for sharing!

Emily @ JohnJaneDoe

Fees, managed mutual funds, saving for a house by investing in a managed mutual fund (meaning I took a loss), running up credit card debt early, not exploring career options better in college, not saving money aggressively…man, I have a lot of mistakes to cop to.

Mr. SSC

Oh, brilliant observation on the realization of reducing 401k contributions wasn’t the best win. I’ve done that the last 2 years, where it has still maxed out, and I’ve gotten my full employer match BUT, I missed out on being able to dump “double funds” in there. Fortunately, I can change that as soon as I finish typing this. 🙂 With the backdoor option or the 72t SEPP option, it’s not that difficult to get at those funds, so the bridge fund isn’t as critical as we also thought.

My biggest mistake beyond not starting earlier, was cashing out a 401k. Yep, the whole thing. I justified it because I was still $3k ahead after paying all the penalties and taxes, so it’s a win right? (Palm slap to forehead). That and subsidizing my lifestyle with credit. Aye yi yi…

You definitely came out way better than me in the mistakes column!

JW

Exactly! I’m less concerned my taxable account will serve as the sole bridge.

Oh boy, Mr SSC, live and learn! Glad to hear you’ve corrected course and are positioned to still retire early!

Mrs. BITA

My biggest mistake, by far, was ignoring my money in India (I worked there for 8 years before moving here) and getting into trouble with the IRS as a result. My I’m-an-ostrich-head-in-sand approach ended up costing us over $12k (ouch!). I’ve written about this and my resulting ulcer in detail on my blog.

Josh @MoneyBuffalo

I just did my “annual portfolio review” this past week and switch from an actively managed mutual fund to a passive index fund. There are some good active funds, I’m a big fan of Oakmark and also have some sector-specific ETFs, but for the core of my funds I like the index funds. Stats normally show that index funds outperform most active funds and the lower fees are another plus in my book.

Mustard Seed Money

If those are the only mistakes that you made with money I say you’re doing awesome!!! I think one of the things that I wish I was smarter about were the cash back/points credit cards. I was foolish and paid with my debit card and probably threw thousands of dollars down the drain over the years. Oh well you live and learn 🙂

JW

You bring up a good one, Mustard Seed. It’s tough to maximize those rewards but I too think I’ve been better in recent years. There was room for improvement before then though.

Thanks for the comment!

Team CF

Well, if these are you only mistakes, you probably beat most of us in the mistakes department (and your net worth is a clear signed of that). Well done I would say. As mentioned earlier, we made tons more, to the point that we would have been FI by now if we didn’t.

JW

It’s great you’re on the FIRE path now and have I’m sure learned valuable lessons for not only yourselves but perhaps the next generation too. Life’s a journey and the most challenging aspects always seem to end up being the most rewarding.

Thanks for the comment, Team CF!

Zach @ Four Pillar Freedom

I love posts like these where people outline the money mistakes they’ve made. As a relatively young investor it helps me learn what pitfalls to avoid without having to experience them myself, so thank you! The tip about minimizing fees and maxing out your 401(k) is especially useful to know, thank you for sharing! 🙂

earlyretirementnow

Good to see that despite some early mistakes we all made it all right.
I wouldn’t sweat the tax loss harvesting too much. For the typical investor who has been putting regular contributions into a taxable account, it would take a really serious drop before you can harvest a sizable tax loss. Most of my tax lots have a cost basis so low, they will never generate a tax loss again. And if you do get a sizable loss you can only work it off $3,000*marginal tax rate per year (maybe $1,200 p.a.). In a $1m portfolio that’s 0.12% p.a., less than the annual Betterment fee.
Cheers!

Ten Factorial Rocks

Pretty simple rule I follow GS and it served me well.

High earned incone = Maximize Traditional IRA or Pre-tax accounts
Moderate income = Maximize Roth and spillover in Trad IRA
Lower income (during FIRE) = Stick with Taxable accounts.

Xyz from Our Financial Path.

Few! I’m not the only one that made mistakes!

We did not maximize our registered accounts early on,
I invested in individual stocks for about a year by basically flipping a coin,
I over-spent on housing for a few years, putting nearly 40% of my income towards housing (now down to 15%)

We all live and learn, thankfully, there is people like you educating us.

JW

I know I know, it was hard to admit my mistakes! 🙂

Absolutely, live and learn. It’s always best to learn from others mistakes though. That’s why it’s nice everyone has been airing out their mistakes in the comments too!

Thanks for stopping by!

Mrs. Groovy

I echo the sentiment that you didn’t really make mistakes. These were more like learning curves along the way. In that sense, we too hit some curves. We began our investing foray with Fidelity target date funds. If I were to start again, I would avoid that type of account – but it was a start when we were ignorant. To our credit, we studied and read up on investing and got more into index funds.

JW

That’s true, you could look at these as learning curves. That’s what life is too, nobody ever gets it perfect.

I’m with you, I’ve never been a big fan of target date funds. I just don’t trust them to truly match my risk appetite, partially because I’m generally more aggressive in owning ask stocks.

Thanks for sharing, Mrs Groovy!

Martin - Get FIRE'd asap

We all make mistakes in life GS, including our finances. My biggest was not starting to learn investing strategies early on. The younger you start, the more time you have to recover from your own mistakes as well as the ups and downs of the various markets and investments we hold in our portfolios. I will say that NOW is always the right time to start but the younger the better. No surprises there.

And reading sites like yours, are in my opinion, the best way to learn how to avoid stuffing up too often since they contain real-life examples from real people rather than trying to sell the latest/greatest investment advice. Keep up the great work matey.

JW

Absolutely! Thanks for sharing, Martin.

I agree and that’s why I enjoy reading blogs so much. You learn from real life examples from people who have been there and done that. Blogs can be a tremendous resource.

Thanks for the comment!

Amber from Red Two Green

Ahh the roth v traditional IRA is tricky. I guess all I can say is that you are not alone! 🙂 I think my biggest regret is not investing when I was younger. I had a lot in savings and who knows where that all went? Wish I’d been more educated about my investing options in my early 20s!

JW

Yes absolutely. At least you were developing good habits of saving! But making that jump to investing it can be tricky. Thank you for sharing, Amber.

PatientWealthBuilder

My biggest mistake was putting a ton of money into one stock in order to write covered call options on it. It went down a little, which for a covered call option strategy is good, but then it kept going down and down and down. I lost a big chunk of money. I learned my lesson and am now focused on index funds and have more than made the money back. It was a good lesson.

JW

Oh bummer! Yes sounds like a good lesson and going with index funds has long-term proven success so nothing wrong with that. Thanks for sharing, PW!

Your First Million

Wow if those are your biggest money mistakes and regrets, you have done pretty well! I have also been pretty lucky overall. There are definitely mistakes and regrets, but I have never really LOST large amounts of money. I have definitely made decisions or investments that slow down my returns. My first rental property was a triplex. This triplex was at one point a single family home that was converted into 3 separate units. Well whenever they converted it, they did not separate the gas and electric utility meters.

After I purchased the property and was paying the gas and electric bills, I soon decided that it might be wise to make the investment to separate the utility meters so that I could legally make the tenants be responsible for paying their own utilities. Well, it turned out that the project cost a lot more than we anticipated. $17,000 later I had 3 individual electric meters and 3 individual gas meters. My original calculations estimated I would basically be getting about a 20% annual return (based on the rent money that was now no longer going to be spent on utilities), but after it was all said and done it has only proven to yield about 6% (which isn’t the end of the world, but a lot less than I wanted). So for me, my mistake was that I did not foresee this before purchasing the property. My second rental property was in the same neighborhood, also a triplex. I bought this property for $20,000 less than the first one and it already had individual meters! Definitely ended up much further ahead on the second one. Remember that action takers never lose. They either win, or they learn!

JW

Thanks, YFM! That was a very interesting money lesson, thank you for sharing! That’s pretty impressive you still generated a positive return after such a large expense. Sounds like a positive lesson learned for the next property.

I love your last point: either winning or learning. That’s a great outlook and very true.

Thanks for the great comment!

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