207: 6 Common Financial Mistakes in the Past Year

In this episode, Josh and Austin dive into the financial pitfalls many of us encountered in the past year without even realizing it. Join the guys as they explore the most prevalent mistakes from 2023 that could be draining your bank account and hindering your financial goals in the future.

 

Main Talking Points

[1:26] – Holding Too Much Cash & FOMO
[7:34] – Chasing Strong Performance from Prior Years
[9:05] – Following Wall Street’s Market Predictions
[10:54] – Dad Joke of the Week
[13:42] – Forgetting Long-Term Financial Plans for Short-Term Reactions
[17:21] – Missing Out on Once-In-A-Lifetime Opportunities
[20:59] – Basing Your Investments on Geopolitical Tension

 

Links & Resources

Full Transcript

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I’m Austin Wilson, Co-Portfolio Manager at Hixon Zuercher Capital Management.

Josh Robb:

I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

We would love it if you’d subscribe. If you’re not subscribed, hit that plus or that follow, whatever that button is on your podcast player so you get new episodes when they drop on Thursdays, and leave us a review on Apple Podcast or Spotify or wherever you are listening to us. That makes us easier to be found by more people like yourselves.

Josh Robb:

Now, you said hit the plus or follow. I’m pretty sure Google says subscribe because it’s pretty straightforward and not complicated.

Austin Wilson:

Well, Google would be that straightforward. They’re not trying to hide it.

Josh Robb:

Fuse anybody.

Austin Wilson:

Yeah. Yeah.

Josh Robb:

This button subscribes you.

Austin Wilson:

Does Google have a podcast player?

Josh Robb:

Oh, it’s amazing. It’s the best one out there.

Austin Wilson:

Statistically speaking, our podcast,-

Josh Robb:

We don’t get a lot of listens to it.

Austin Wilson:

Our podcast is, it’s like 80% Apple Podcast player, so.

Josh Robb:

Yep.

Austin Wilson:

Mostly that one.

Josh Robb:

Also, you can invest with us by going to our website, theinvesteddads.com, and there is a page where it kind of walks you through that so you can reach out to us and reach out if you have any questions or would like to know more about that.

 

[1:26] – Holding Too Much Cash & FOMO 

Austin Wilson:

Absolutely. So today we’re sitting here in 2024 and we’re looking back at 2023, and we’re going to see and try and distinguish six, count them, not five, six mistakes that we saw people make financially when it comes to their situation. So let’s just start it right at the beginning, Josh, because 2022, very volatile markets.

Josh Robb:

Two years ago, craziest.

Austin Wilson:

Two years ago. 2023, pretty good year in the markets generally speaking.

Josh Robb:

Especially here in the US.

Austin Wilson:

Especially here in the US. But here are some thoughts that we have about what people did or didn’t do, could be, in 2023, and number one is holding too much cash. Ooh. So here’s my thinking. Cash earned depending on when during the year, an interest rate of four to 5%. That’s pretty good.

Josh Robb:

And we’re talking like money market account.

Austin Wilson:

Money market funds, high yield savings.

Josh Robb:

And high yield savings. Now, I did read an article that the percentage of people who had money in high yield savings accounts versus a regular savings account, it was depressing.

Austin Wilson:

It should’ve been more.

Josh Robb:

I’m going to say it was like 20% or something like that. I have to go back and look, but the idea was it was a lot less than it should be because it’s not a lot of work to open one, doesn’t cost anything extra. Most high yield savings accounts are free. They don’t charge anything for anything. And so the effort, it’s just the amount of, oh, that just seems like a lot of work.

Austin Wilson:

See, regardless,-

Josh Robb:

And the difference between 0.3 and 4%, it means you’re talking a significant difference in interest.

Austin Wilson:

I even think regardless of the interest rate regime. So yes, we’re in an era where interest rates are higher, which is good for savings in terms of that sort of things. Regardless, it’s not advantageous of you aside from cashflow needs, that’s different. But aside from cashflow, there is no point in having cash at a bank in a normal savings account.

Josh Robb:

No.

Austin Wilson:

There’s no advantage. It’s there for liquidity and to get to very, very quickly.

Josh Robb:

Yep.

Austin Wilson:

But I have always been a fan of keeping that money in a savings account, yielding something,-

Josh Robb:

Somewhere doing something.

Austin Wilson:

Somewhere else.

Josh Robb:

Yeah. Even when we talk emergency funds. The time now with technology, we’re talking two to three days, if you have a high yield savings account and you need to move it to your checking account.

Austin Wilson:

It’s unlikely you have an emergency that quick.

Josh Robb:

Yes.

Austin Wilson:

And maybe you put it on your credit cards. You just have to move that money over until you pay the next bill.

Josh Robb:

Yeah, so there’s really minimal excuses or reasons why.

Austin Wilson:

Yeah. So,-

Josh Robb:

Yes, I was just shocked at how little use you got out of a higher yield savings account in the overall population. This same article also said that it was less than 50% of the population could cover $500,-

Austin Wilson:

Yeah.

Josh Robb:

Which is also,-

Austin Wilson:

Not good.

Josh Robb:

Frustrating. But the fact that they can’t do that and they’re not earning anything was just depressing for me.

Austin Wilson:

So back to what I was saying, four to 5% for cash. It’s what you yielded. You lost nor gained any money in principle, but you yielded 4 to 5% in interest income.

Josh Robb:

4-5%. Good job.

Austin Wilson:

Four yeah, that’d be great. Four to five. That’s your bogey. So that was not bad for cash and actually pretty much the same return you got in the bond market last year.

Josh Robb:

Yes. Yep.

Austin Wilson:

But,-

Josh Robb:

I think the ag was up five,-

Austin Wilson:

Yep. Exactly.

Josh Robb:

Year. Yeah.

Austin Wilson:

But that 4 to 5% underperformed stocks by quite a bit. If we recall, the S&P 500 was up 26%. Also, we know that historically speaking, both stocks and bonds have outperformed cash in the 12 months following peak interest rates. So as interest rates go in cycles and following that cyclic high, the high point of interest rates for that cycle in five out of the last six cycles, stocks have outperformed cash going forward for the next 12 months. And in six out of the six last cycles, bonds have outperformed cash in the following 12 months. And it’s likely, it’s very, very likely that interest rates peaked last September.

So that’s one opportunity to be putting cash to work now, but also the fact of looking back, that last year ended up being a pretty good year. And if you’re sitting on a bunch of cash, you underperformed by quite a bit. That is not necessarily, say that cash doesn’t have its purpose because it does for cashflow needs, for short-term savings needs, but when it comes to an investment, cash is not an investment. Cash is what we would call trash.

Josh Robb:

Yep. So as an advisor, I tell clients, anything you need this year, if you have an expense that you know of, cash is the thing to use.

Austin Wilson:

Yeah.

Josh Robb:

Right. Because you’re giving up yield for that reduction of volatility.

Austin Wilson:

Yep.

Josh Robb:

I’m going to hold cash and if I have a dollar whenever I go to use it, it’s going to still be a dollar. It doesn’t fluctuate.

Austin Wilson:

Absolutely.

Josh Robb:

That’s the benefit. You have to have a trade-off. And so the trade-off is if I’m not going to have volatility, I’m giving up that chance of growth.

Austin Wilson:

Yep.

Josh Robb:

And so you’re right, cash has its purpose from a planning standpoint, from an advising standpoint, it is short-term needs that you know you’re going to need to cover to remove the risk of what if the market falls apart like in 2022, and I still need to pay the expense that’s coming like a home purchase, car purchase, college, those things. If it’s happening now, you don’t want the exposure.

Austin Wilson:

Right.

Josh Robb:

And so you’re right, that’s the usefulness of cash. Outside of that window, and I would even say you could go again now 18 months if you’re really conservative, but outside of that window, cash just doesn’t help. It doesn’t help at all. Like you just said, after you hit that top peak point,-

Austin Wilson:

It’s all down. Yeah.

Josh Robb:

Historically, it really shows you that cash doesn’t provide much value for returns when it comes to investing.

Austin Wilson:

And I would argue, like you had mentioned, if it’s anything at all that’s not cashflow on a day-to-day basis, that you need in your checking, keep that somewhere you can get some yield.

Josh Robb:

Yes. Earn something.

Austin Wilson:

Earn something. And right now is a pretty good time to be earning something on that cash. Even if it’s just the little amount you’re setting aside for your property taxes or whatever. Keep it in an account getting 4%.

Josh Robb:

You can at least keep up with inflation at this point.

Austin Wilson:

At this point.

Josh Robb:

Where interests are right now.

 

[7:34] – Chasing Strong Performance from Prior Years 

Austin Wilson:

Yep. All right, number two, chasing performance. That’s something people did in 2023 that maybe was not such a good idea. So think about this, if you bought or you over weighted and went really heavy into the big winners from 2022, so you chased the winners.

Josh Robb:

Yeah.

Austin Wilson:

You chased the winners from 2022, you did not do so well in 2023. So 2022 was the first time period, annual year since 2017 where value stocks outperformed growth stocks.

Josh Robb:

And a pretty good out performance.

Austin Wilson:

Pretty good out performance, yeah.

Josh Robb:

Yep.

Austin Wilson:

Value stocks outperformed by gross stocks by about 20% that year. Higher interest rates, higher oil prices, those were areas of the market that were benefited by that. So one may have gone into 2023 saying, well, this is the start of a new trend. Value is the king. I’m going to go buy that for 2023. That didn’t work out. 2023 wasn’t even close.

Josh Robb:

Nope.

Austin Wilson:

Growth stocks were back to the winning ways that they’ve had recently, and they outperformed value stocks by over 30%. And that was the second largest out performance on record for that asset class. So what we’ve learned here is don’t think that what happened and what worked and what was in favor last year is what’s going to be in favor and what worked this year.

Josh Robb:

Yeah. And same is true with individual holdings. If you see a company or a fund or an investment skyrocket up, chances are if you weren’t in it and you missed it, it’s not going to duplicate that again. And so chasing after those good returns usually means you’re going to underperform.

 

[9:05] – Following Wall Street’s Market Predictions 

Austin Wilson:

Yeah, totally agree. And number three, it was a mistake if you would’ve followed Wall Street predictions.

Josh Robb:

That’s usually the case.

Austin Wilson:

Those were like at the end of 2022 going into 2023.

Josh Robb:

Yes.

Austin Wilson:

So Wall Street analysts, and that’s including big banks like Morgan Stanley, Bank of America, Goldman Sachs, they made consensus predictions at the end of 2022 to do a few things. Number one, sell US stock. They thought they were going to be bad. Number two, buy treasuries. They thought they were going to be great. Number three, buy Chinese stocks because that was what was going to be in favor at that point. All of these predictions turned out to be wrong. So the S&P 500 climbed over 20%. Nasdaq was up over 50%.

Josh Robb:

Crazy.

Austin Wilson:

Well above consensus. Bond analysts got it wrong. They anticipated a recession. They thought the aggressive interest rate hikes would have a big impact. They also made incorrect predictions as the economy continued to grow, which led to higher interest rates for much of the year. Bonds were actually negative in the third quarter, by the way.

Josh Robb:

Yes.

Austin Wilson:

Or all the way through the third quarter, and only eked out that 5% gain in the fourth quarter alone and,-

Josh Robb:

Pretty much in December.

Austin Wilson:

It was. December was crazy.

Josh Robb:

Yeah.

Austin Wilson:

And then China, the note on China, they were very wrong. Don’t buy China because China was a bloodbath. It was,-

Josh Robb:

Oh, it was horrible.

Austin Wilson:

There was no place to hide. The economic reopening had not really happened. Very pessimistic situation over there. So really, all of this can be attributed to some misunderstanding of the economic forces that were unleashed and recovering since the pandemic in 2020. And consumers have been excessively strong, inflation has been a little bit more persistent. And I think that generally speaking, last year would’ve been a bad year to be following Wall Street predictions, especially if you just looked at a point like at the beginning of the year and said, okay, well what people are saying is going to happen this year, this is what I’m all in on. No.

Josh Robb:

Yep.

Austin Wilson:

Not so good. So those are the first three. Josh is going to come back with the next three after,-

Josh Robb:

That’s right.

 

[10:54] – Dad Joke of the Week 

Austin Wilson:

A short break for your dad joke of the week. Are you ready for this?

Josh Robb:

I am ready. I’m excited.

Austin Wilson:

It’s a pretty good one here. So what Josh, do you call a factory that makes eh okay products?

Josh Robb:

Ooh, I’m not sure.

Austin Wilson:

It’s a satisfactory.

Josh Robb:

Satisfactory.

Austin Wilson:

It’s a satisfactory.

Josh Robb:

There you go.

Austin Wilson:

It’s not like knocking it out of the park, but it’s satisfactory.

Josh Robb:

It’s satisfactory. I like it.

Austin Wilson:

All right, Josh, take us home.

Josh Robb:

That’s good. All right, so three more mistakes we saw last year, and I want to start with letting geopolitical uncertainty dictate how you invest. And so what I’m talking about there is when you look around the globe and there are wars, conflicts, issues, potential wars, letting all that news drive you to either stay out of the market or drastically change what you’re doing with your investments. Because what we’ve seen, and this is true historically speaking, is that whenever there’s a geopolitical event, especially one where the US isn’t directly involved,-

Austin Wilson:

Not like a world war where we’re on the front lines. Yes.

Josh Robb:

But two recent examples, Russia, Ukraine.

Austin Wilson:

Yep.

Josh Robb:

And then the Israel Hamas conflict.

Austin Wilson:

Yep.

Josh Robb:

So both of those, we did see short-term volatility in the markets as there was new headlines that needed digested. But the long-term impact was very minimal on the US economy, on the US market, and even on the global market in general.

Austin Wilson:

True.

Josh Robb:

And this all come to conclude for us, is that there are scary news, there are just tragic events that happen.

Austin Wilson:

Loss of life is no joke.

Josh Robb:

I’m not going to lighten that.

Austin Wilson:

Yeah. Yeah. Yeah.

Josh Robb:

But from an investment standpoint, doing a knee-jerk reaction, reacting to that and making a big adjustment to your investments historically has not helped.

Austin Wilson:

No.

Josh Robb:

Because more often than not, by the time you get to reacting to that, the market’s already priced in a reaction to it.

Austin Wilson:

Yes.

Josh Robb:

And at that point it’s already started to adapt and adjust. And that’s what we do know, is the market is always digesting information and adapting and adjusting to that. And when I talk to the market, people kind of reference the market as this living breathing thing, and it is made up of human beings making decisions for companies. And so when you take the Israel Hamas conflict, right, the shock of that initial news caused some volatility. But then as the market and that delves down to individuals running companies made decisions, they said, how will this actually impact us? And they were able to then adjust their business. And historically there’s very minimal long-term impact.

Austin Wilson:

Absolutely.

Josh Robb:

And so again, the news tragic, it should not dictate when you’re invested or how you’re invested based on that.

Austin Wilson:

Absolutely.

 

[13:42] – Forgetting Long-Term Financial Plans for Short-Term Reactions 

Josh Robb:

So that was one. Number two, and this is a big one, and this is not just 2023, this is any year because if you’ve ever paid attention to the news, there’s always something going on.

Austin Wilson:

Always something.

Josh Robb:

2023 was a great example of this, is forgetting your long-term plans and focusing on just the short-term reactions. What do I mean by that? Is at any point in time, pick a day, there’s probably something going on somewhere in the world that would make you question if what you’re doing is right. If you worked with a financial advisor or you came up with a plan on your own. If you’ve set up a plan that helps you give the best chance to achieve your long-term goals, there’s very little in the interim that should change that. There are reasons to adjust your plan. For instance, I had a job, then I got fired, I should re-look at my plan. What changes do I need to make?

Austin Wilson:

That’s a change.

Josh Robb:

Or on the positive side, I had a job, I got this offer. Maybe it’s a raise or maybe it’s a new promotion or a new position. How has that affected my long-term plan? Those are the ones that you need to sit down and reevaluate your plan. A conflict, a downturn in the stock market, those are not reasons for you to forget the why am I doing these things.

Austin Wilson:

Yep.

Josh Robb:

In fact, more often than not, if you just stick to how you’re investing and how you’re saving, this market volatility or whatever it is, that’s going to smooth out over the long term. Because in the end, sticking with a plan gives you the best chance to achieve those goals.

Austin Wilson:

Yeah.

Josh Robb:

If you’re, again, constantly changing and adjusting things, one, it’s going to be hard to know if you’re even on track because you’re just moving that goalpost all over the place. But two, it really hurts your ability to get that compounding effect that we all know the market provides if you give it enough. So start of the year, if markets are down, stick with the course.

Austin Wilson:

Stick with it.

Josh Robb:

Start of the year, markets are up,-

Austin Wilson:

Stick with it.

Josh Robb:

Stick with the plan. That’s the whole point, is just stick with your plan. Adjust it only when a decision or an reaction to your actual plan has happened. So for instance, you’re young and you’re saying, hey, we’re saving a bunch of money. We’re going to retire early. Oh look, we’re expecting a baby. Change to your plan.

Austin Wilson:

Change your plan.

Josh Robb:

All right. So all those things happen. Or even something shorter term, and this is true is, hey, we’re doing great. We’re saving well. Oh no, we had a car crash. We need to replace our car.

Austin Wilson:

Yep.

Josh Robb:

Okay, that’s a plan adjustment. Let’s reevaluate short-term versus long-term savings to get you back on track, right? But it’s not because, oh, the market was down 20%, I need to adjust my plan. No, no, you don’t.

Austin Wilson:

Here’s another good one here.

Josh Robb:

Yes.

Austin Wilson:

You’d came into the year without a plan. Change your plan.

Josh Robb:

Change your plan. Get a plan.

Austin Wilson:

Get a plan.

Josh Robb:

Find a plan.

Austin Wilson:

Get a plan. Yep.

Josh Robb:

And the last one is sometimes, and this may actually sound like something you’d want is, hey, what if I get more aggressive? Markets are down, let me get more aggressive.

Austin Wilson:

Yeah.

Josh Robb:

Now, there’s probably a reason you were in your asset allocation to be begin. There was thought put into it. Just because the market did something, really shouldn’t be the reason that it draws it.

Austin Wilson:

Right.

Josh Robb:

It could mean you need to adjust it, but that shouldn’t be their driving force. More often it should be because hey, we’ve already met our goals or we have a new income source that’s providing, we don’t need to save as much. Those type of things. Man, don’t adjust your, especially your volatility just because of something the market’s doing because it’s going to switch at some point and you’re going to still be in a higher volatile thing in a down market and you may not like it.

Austin Wilson:

You don’t want to compound your wrongness about what you’re doing. And you can do that if you make the wrong decision at the wrong time, you can compound it because you’ll have to make the different wrong decision at the wrong time to do it again.

 

[17:21] – Missing Out on Once-In-A-Lifetime Opportunities 

Josh Robb:

All right. In the final missed opportunity or mistake of 2023 is missing out on a once in a lifetime opportunity.

Austin Wilson:

Woo.

Josh Robb:

Now, I’m not talking about,-

Austin Wilson:

Explain this once in a lifetime,-

Josh Robb:

I’m not talking about your best friend who shows up and says, hey, I have this investment deal that is going to set you up for life.

Austin Wilson:

Josh,-

Josh Robb:

Not that.

Austin Wilson:

We just talked about that. You don’t need to bring that into this.

Josh Robb:

Okay. So what I’m talking about are there are certain things you can do for your plan that at a given point in time, you can no longer do. Example, easy 401k contribution. In a calendar year, you can do X amount of dollars. You are not allowed to go backwards in time and fill up that missed time. So if let’s say you were contributing $10,000 to your 401k last year, you cannot this year say, oh, I have some extra money. I want to go back and add some more for last year’s 401ks.

Austin Wilson:

Nope.

Josh Robb:

Cannot do that. Same is true with Roth IRA. You could do $6,500 into a Roth IRA at the end of the year. Well, you actually get a little extra time, but there’s a stop point. You cannot ever go back and fill it up.

Austin Wilson:

Yep.

Josh Robb:

And those are the things, when it comes especially to saving is that missed opportunity is going to compound over time.

Austin Wilson:

Or when you have earned income.

Josh Robb:

Yes. So if you make too much money.

Austin Wilson:

There are certain things you can either only do when you make a certain amount of money or when you even have a job period that you lose the ability to later on. So that’s things like IRA contributions, like something to keep in your mind.

Josh Robb:

And then another one is a health savings account. Again it’s the calendar year, calendar year, you have a certain amount you can put in there. Triple tax savings, we’ve talked about this in other episodes. You get a tax deduction when you put the money in. It grows tax-free. And if you use it for healthcare expenses, no tax on the distribution.

Austin Wilson:

Pretty good deal.

Josh Robb:

All right. There’s only a certain amount you can put in per year and you can never go back and add more.

Austin Wilson:

Yep.

Josh Robb:

And so again, make sure that you’re not missing out on these opportunities. Now on the other end, when it comes to spending, medical expenses. Most people are in a high deductible plan or some sort of plan where they have to pay out of pocket up to a certain amount. If you hit that and then going forward, you’re either in a copay or that it’s being covered by your medical insurance, that’s a great time to have other medical costs. I would hate for somebody who could have done a medical procedure in December, wait until January when their deductible reset.

Austin Wilson:

Yeah. Then they have to pay a lot more money.

Josh Robb:

And then they’re back paying out of pocket. So just be strategic about that. Or if you’re looking on the other end again for spending, is tax deductions, is can I do some things at the end of the year to either reduce my taxes or if I’m in a low tax bracket, create some income and pay the tax? Because again, once that calendar year ends, it’s done. So don’t miss out on opportunities, not the get rich quick scheme from your best friend, but the opportunities that allow you to get farther down the road towards your goals because they are giving you a limited time to enact or utilize tax savings or investment savings.

Austin Wilson:

Absolutely. So in summary, Josh, number one, these are all applicable, not just,-

Josh Robb:

Any year.

Austin Wilson:

2023, but these are things we particularly saw in 23. Number one, things to avoid going forward also, holding too much cash outside of your immediate liquidity needs.

Josh Robb:

Yes, investment.

Austin Wilson:

Investments, cash is not an investment.

Josh Robb:

Nope.

Austin Wilson:

Okay? Number two, chasing performance. It doesn’t matter 2023 or any other time, it’s not good, so don’t chase, just stick to the plan. Number three, don’t get hung up on Wall Street recommendations because they’re as wrong as anyone.

Josh Robb:

Always.

 

[20:59] – Basing Your Investments on Geopolitical Tension 

Austin Wilson:

They don’t know what’s going to happen a year out. Nobody knows what’s going to happen a year out. Number four, not investing during geopolitical uncertainty. Guess what? There’s geopolitical uncertainty all the time and especially now. So just stick to the plan. Don’t let it drive your investment decisions there. Number five, forgetting your long-term plans. You have a plan for a reason. Stick to the plan and the plan will be there for you. And number six, as Josh mentioned, missing those limited opportunities, limited time opportunities, limited dollar opportunities, they’re not there forever. So be sure that you’re planning for those things. Well, thank you guys for listening this week. Please remember, you can always share our episodes with friends and family who might’ve been asking about some of the stuff we’ve talked about. Email us any ideas that you want to hear about on the show to hello@theinvesteddads.com. And until next episode, have a great one.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.