The Money Mistakes I Made (and how it cost me a much earlier retirement)

By Bill Jackson December 13, 2022 13 mins read 174 Views

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By Dr. Anthony Ellis, WCI Columnist

Writing this article was difficult. Tallying up one’s financial mistakes and putting them in front of a savvy investing crowd like White Coat Investor readers with my real name attached . . . just begs for some serious criticism. But I said I would write it, and here it is. Some mistakes are clearly mistakes. Others seem so in hindsight. And some are highly subjective (like paying for private school or not, owning new cars or slightly used, or buying an expensive home). I would ask that if you have something to say, you might consider putting one of your own financial mistakes in the comment section so that readers can try to avoid my past mistakes and other common errors. It’s not easy to admit mistakes, but our mea culpa might help other WCI readers, especially the youngest white coat investors.

Before I get to the list, I would like to say I’m just a regular person. I’m no financial guru. I’ve written no financial books. Like most people over the age of 5, I’ve made plenty of mistakes of all sorts, and I’ve learned from most of them. I am the proverbial physician investor who mostly lucked out due to being a high-wage earner, and I made some good mid-course corrections. My mistakes were also partly mitigated by working two jobs at times and many side gig weekends for the past decade when my “on-paper” wealth had been cut in half by the brutal market drop of 2007-2009.

In no particular order, here's where I went wrong.

My Money Mistakes

1) I did not have a detailed financial plan until about age 48. The plan from age 30 to about 2012 was “max out the 401(k) plan with equity mutual funds.” I never calculated a yearly return against a benchmark on this autopilot, 100% equity plan. This was from 1994 to about 2012 and included the stock market crash of 2007-2009 and some of its recovery. One saving grace here: I sold nothing when my half million-dollar 401(k)-only portfolio was cut almost directly in half from 2007-2009, and it subsequently recovered fully by around 2014. That was only eight years ago.

2) For several years around 2001-2004, I was not contributing to my work 401(k) when I took a new job that had an “executive defined benefit pension plan.” This could have been cured with a phone call. I don’t remember exactly how and when I found out that I could actually contribute to my 401(k) while in that defined benefit pension, but I missed several years of contributions and the tax breaks associated with them due to this mistake. I shudder to calculate the total compounded loss associated with this error and simply hope we enjoyed spending that money. We have always been great at spending money. One nice win here. The defined benefit pension plan is either worth $25,000 a year from age 60 to the grave (and continues for my wife who will likely live to age 95) or a buyout amount to be announced this spring. The preliminary amount was impressive, and it seems the advice on this is to take the lump sum, especially since the pension is not indexed to inflation. Still, I should have been stoking the 401(k) and the 457 plan available at that time. We would have had to take fewer vacations.

3) On a relative whim, I bought physical gold and paid to store it inside an IRA from 2014-2019 (it should be noted that this was NOT part of my written investing plan). To do this, I moved $30,000 out of the market, bought American Eagle gold coins (for about $1,275 each), held them for about five years, and then sold them at about $3,000. Minus the high commissions, storage, and gold IRA fees, I only netted about 2.5% per year in returns—similar to having kept the funds in cash. Clearly, I would have done better to leave it in equities, and I have little in terms of explanation. I must have been watching too many zombie movies or something. I think it was about 3% of my portfolio. At present, I think owning physical gold has little utility, and it was just folly. If you need to rely on physical gold assets, then the world may have reached a point where a couple of firearms or a basement fallout shelter might be a better purchase.

4) I have never done a Backdoor Roth, and I have zero Roth IRA money. My rationale, as I remember it, was that it was “too complicated” (lazy), and we didn’t have money left over after maxing out all my tax-deferred accounts. Surely, we could have carved out this money from the budget and made this happen, and we simply did not do it. We spent too much instead. There are step-by-step instructions available on WCI, and it seems most folks can figure it out. I also remember thinking I did not trust the government not to change the rules retroactively to negate the benefit of this tax avoidance maneuver. Either way, I’ve made peace with not having any Roth money.

5) I hired a non-fiduciary advisor and paid him $1,000 a year, in addition to layers of asset management and mutual fund fees for a proprietary cookie-cutter allocation and for automatic rebalancing (from 2013-2017). I calculated the return for 2013 alone, and it was half the return of the S&P 500. Of course, it was not a 100% equity portfolio. Having experienced the 50% drop of 2007-2009, I changed to a 60/40 portfolio with this company. I think it was called “moderately aggressive” and then later “moderate.” I was disappointed in their performance across five years and discovered the WCI book and blog at about this time. In November 2017, I took over my own money management again—after having done it all myself from 1994-2012—using Personal Capital to track all my accounts. In defense of this arrangement, I did get a look at my “whole plan,” and it was more detailed than my previous “top-off-the-401(k)” equity-only plan.

6) We built a large home in a non-growth area. Selling it 20 years later, we netted no gains. We would be much better off financially now if we had just stayed in the 1,900 square-foot starter home and built a room over the garage. This is a difficult calculation, as it is not all financial. The house was built on four acres of riverfront woods in a gated neighborhood of similar homes. We put $60,000 into the home across 20 years. It sold for $65,000 less than our basis, minus commission and closing costs. The homes nearby had ALL just barely regained their 2005 values despite the huge pandemic bubble valuation rocket. The house, land, and subdivision were beautiful. We raised our children there, and it was a wonderful 20 years. I calculated the difference in cost and expenses and figured I could have retired perhaps a decade earlier if we had stayed in the starter home. I’m ambivalent about calling this a mistake. It was nice in the McMansion, but was it worth it? Did we really have to go over budget by $75,000 after buying the biggest lot on the river? The error was a trio of marginal location, poor local market growth, and the actual degree of McMansion expansion. I think most physicians upgrade from their “starter home,” but we could have been more restrained. We certainly upgraded and paid for it. I can say the kids loved living there, and they miss this home. It has been converted to tax-free proceeds that folded into our retirement plan, and we have lots of great memories. One more caveat: our starter home was burglarized once, and the new home had an alarm and a large dog from the start. I never felt safe in the old house after the break-in. In the McMansion subdivision, there was no crime, ever, in two decades. That peace of mind was worth something. Overall, I’ve learned on WCI that your house is not an investment; it’s your home.

7) We did not buy pre-paid education contracts for college. In hindsight, these $25,000-$30,000 chunks (in the late 1990s) were bargains. Instead, we funded an UTMA account for our eldest and bought individual stocks (the WCI crowd groans). It took 20 years to double, implying a return of about 3.6%. We used 529 plans for the other children and did better with those, as they were based on index funds or age-related auto-balanced allocations. Another error: I also did not put enough in these plans, and later, I had to shift some side gig money toward college expenses that otherwise could have helped us to an earlier or a better-funded retirement. The mistake here was spending too much money in general and not putting enough away to meet the goal of funding a four-year degree for each of our four children. I met the shortfall by working extra in my side gig . . . a lot of weekends and holidays.

8) I compiled and edited a niche running book across one summer. Then, I self-published it and printed too many copies. I lost $10,000 on the deal despite a lot of work. This enterprise was supposed to help fund the kids' college accounts. I drew up a pro forma that planned out a $30,000 profit but ended up with a $10,000 loss. You know that adage about physicians sticking to what they know? While everyone may “have a book in them,” remember that it might not be a profitable book. It’s not as easy as it seems. In three ways, it was not a mistake: I enjoyed the process. I learned a lot. And it was enjoyed by many who read it. It was not fun trying to sell it on Amazon and making a few dollars per copy after shipping. At some trade shows, I sold more socks and mugs than books. That was tough.

my money mistakes

9) I regret not buying vacant canal-front land in Florida in 1998 for $9,000 per lot. We also passed on a variety of waterfront condo deals that seem great in hindsight. I thought I’d mention at least one missed opportunity as a mistake. I’m sure everyone has a few of these. I could list more, but the idea is that if you identify a great opportunity, you should cut funds from elsewhere to make it happen. Otherwise, why even look at opportunities and incur regret, if you have no budgeted funds to follow through?

10) We kept our starter home as a rental with a property management company and then did not sell it when it was not making money. This rental property was eventually sold for $6,000 over its original cost after 20 years of renting it. It lost money every year for a decade, and after almost 20 years, it produced a meager $27,000 capital gain after paying it off. We managed it ourselves for over a decade to improve the margin, and this put me off being a landlord again—possibly forever. In my defense, the real estate downturn from 2007-2013 made selling it then a hard pill to swallow. We finally dumped it in 2019, thankfully before the pandemic “Sorry, you get no rent” scenario. Having a rental and no rent for a year or two would have made this story worse, but then it would have sold for more in 2021. I can say I had a party in my mind when it was off the books.

11) We bought several new cars: a 2006 Toyota Highlander Hybrid for $46,000 (we sold it for $9,000 with 93,000 miles) and a 2006 Toyota Avalon XLS for $36,000 (we sold it for $4,000 with 228,000 miles). The depreciation on these two alone was about $70,000. My point is that buying a new car is not a good financial decision. Interestingly, my older brother who has never owned a new car recently told me that if he came into a notable amount of money, the first thing he would buy would be a new car. I did buy my dream car one time in my life at age 50. It was a used 2013 Jeep Wrangler Rubicon 10th Anniversary edition. It depreciated so little in the six years I drove it that I owed tax money on its sale in 2021 (any excess depreciation is recaptured at the time the car is sold). The topic of buying reasonable used cars has been covered on WCI in the past.

12) I played with market timing. I sold some equities after the 2020 pandemic flash crash and day-traded with some of my liquidated bond allocation after the Fed’s actions propped up the bond market. While this may have worked to a degree, it was very risky. It’s likely that I would have done better leaving my core allocations alone, as I had when prices fell roughly 50% from peak to trough from October 2007-March 2009. The 60/40 portfolio allocation that has been popular for several decades has average returns of 7.87% in the past 10 years and 8.00% across the past 30 years. However, Vanguard’s Total Bond Market ETF (BND) fund has posted a meager 0.65% 10-year return and a 4.32% 30-year return. My decision to not dive back into the bond market for the past two years has mostly been lucky, as bonds have had their worst performance in decades. It’s still just rationalized market timing. I will say that in the mostly up market from July 2020-2021, the market doubled from its pandemic lows. So did my accounts, but I had 40% of my money in cash during this time instead of bonds. I made about $60,000 day trading my bond allocation inside my retirement accounts in the one year after the pandemic low (March 2020-March 2021). In the meantime, bonds . . . well, bonds have been hammered. But they are getting a nod from some market timing sorts in the final quarter of 2022.

13) I have bought individual stocks throughout my investing life. Several became worthless. One that comes to mind was Borders, a bookstore we frequented. I bought $1,800 worth in the UTMA for my daughter, and the company went bankrupt. I bought another niche transport stock (luckily only $1,000 worth) that became worthless. There were others I’ve conveniently forgotten. Mostly, people remember their winners and not the losers. I also bought individual stocks in my wife’s IRA account that have had almost zero returns in recent years due to my poor stock picking. I have records showing it to be $36,000 in January 2015 vs. $53,000 now. That’s about a 47% total return in 7 1/2 years or about 6% per year, less than a 60/40 portfolio average over the past five years but with higher risk. Who do I think I am, Warren Buffett?

14) We took a lot of pricey vacations. The intensity of work that made it possible for me to afford these vacations was exactly what tended to burn me out enough to need them. At times, the relaxation effects dissipated quickly. I don’t really think of this as much of a mistake since the family vacations were awesome, and they provided the best of times and memories. Like the new car buying, it’s a matter of spending more than one should. We stepped back from flying all the time after our fourth child and drove the family van on many of these to save money.

Even until recently, I’m still making mistakes. I bought a chunk of Amazon stock after selling my Michigan McMansion. In three months, I lost all $6,500. I still stink at this. Hopefully, it’s a lesson I’ll eventually learn.

Despite these mistakes, all easily identified in hindsight, things have worked out mostly, proving you don’t have to get it right all the time to win the game. I retired to part-time work at 58, and I couldn’t be happier about it, especially after moving to the mountains of North Carolina. It also helps that I was investing during one of the longest bull markets in history after the debacle of 2007-2009 and that I had a scalable side gig to make up for some of our budgetary and investing decisions.

I think if you learn from your mistakes (and those of others), then they have served their purpose. Currently, I’m learning a lot about how not to invest from the cryptocurrency crowd. Does anyone want my Bored Ape Yacht Club NFT for half price? Just kidding . . . I'm going to HODL that.

What do you think about my mistakes? Did you make any of the same ones? What are some of your biggest follies? Comment below!

The post All the Money Mistakes I’ve Made (and How It Cost Me an Even Earlier Retirement) appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.

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By: Josh Katzowitz
Title: All the Money Mistakes I’ve Made (and How It Cost Me an Even Earlier Retirement)
Sourced From: www.whitecoatinvestor.com/all-the-money-mistakes-ive-made/
Published Date: Tue, 13 Dec 2022 07:30:12 +0000