Over the years, I’ve heard a lot of stories and I’ve seen client after client make mistakes that set them back. Today, I want to share some of those with you in hopes that you will learn from them.
Obviously, I won’t use the actual names of people in order to protect their identities.
Can’t stop using credit cards
I have a client (Bob) that had a lot of credit card debt. Unfortunately, this debt was accumulated prior to him becoming a customer of mine.
Anyway, he had over $20,000 in credit card debt. One day, he decided to take out a home equity line of credit (HELOC) to pay off that debt, as well as finance some home repairs.
Taking out the HELOC was a good choice for paying off that debt, but the home repairs weren’t necessary. They were wanted and should’ve waited.
Not long after he got the HELOC, he started accumulating more credit card debt. It got to the point where he was back over $20,000 and had to take out another loan to pay that debt off. The most recent loan he took out while a client – and he still is my client. We will see if he can restrain himself enough to not use his credit cards.
There are two things I want you to take away from this.
One, if you take out a loan to pay off credit card debt, you better be darn sure you won’t accumulate any more. Paying off high-interest debt is great, but only if you stop buying with your card.
Two, had he not racked up all that debt in the beginning, he could’ve saved up for those home repairs. That’s the biggest advantage of having a rainy day fund, it’s there when you need it.
Bad financial advisor
I have a client couple, John and Jane, that became a client of mine several years ago. Before me, they had another advisor.
They had an extremely bad experience with this advisor, and it’s because of him my profession gets a bad rap.
This advisor (George), acquired John and Jane’s assets and helped them establish a retirement account. George charged them a fee of 1 percent annually to manage their accounts.
Once the paperwork was signed and the account was set up, George, seemingly, didn’t do another thing for John and Jane.
He let their account sit and collected his 1 percent per year fee. Obviously, John and Jane were upset and lost a lot of money.
Two takeaways here.
One, this is your retirement savings at stake. When hiring an advisor, you really need to do your homework. Have multiple meetings with him/her. Get an idea of their character and what’s important to them. You owe yourself to be picky.
Two, fees will crush you. Every. Single. Time. A trusted advisor should be transparent with their fees, and the fee that they charge should correspond with the services they provide.
If they’re full service, 1 percent is justified. If they only perform a select number of services, then their fee should be less.
Barbara has only been a client of mine for a few years. When we first met, she had all of her money in a savings account. All of it!
She was fully invested when the Great Financial Crisis (GFC) took place, and she lost a significant amount of money. So she pulled it all and stuck it in a bank account.
You know as well as I do that had she kept the money invested and rode through the GFC, she would’ve come out so much farther ahead, but the brain doesn’t work that way.
Her psyche was damaged from experiencing those losses to the point where she was no longer willing to take risks.
Thankfully, she’s slowly investing her money and hopefully, will continue to do so.
Making up for lost time
This last story, unfortunately, is all too common. Rick is in his fifties. He hasn’t had the best saving habits, so his retirement account is underfunded.
He still has time to save more and beef up his account, but he’s worried and rightfully so. Everything is expensive, and if you’re not able to work, the money has to come from somewhere.
Along with increasing his savings rate, Rick decides he wants to be more aggressive. Someone in their fifties should have a 50/50 stock/bond allocation. This is a general recommendation, actual allocations will vary by risk tolerance and time horizon.
Rick wants an 80/20 allocation. In my professional opinion, it’s far too risky. I do my best to nudge him back the other way, but he’s insistent and at the end of the day, it’s his money.
In this situation, I’ll have the client sign a consent form stating that they are choosing to not take my advice and that I won’t be held accountable for excessive losses if they occur.
Mistakes happen all of the time. Unfortunately, some happen much more often than others. Part of my job is to recognize those mistakes and correct them before they do too much damage.
Learn before you commit the same errors.
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: firstname.lastname@example.org