Are You Making These Costly Wealth Mistakes? 7 Common Mistakes of High-Net-Worth Investors

You're earning more than ever, but your money might not be working as hard as you do. High income doesn't automatically mean financial security, and these common mistakes prove it. And here's the thing, most people know that they should get their financial house in order, but they're just too busy. That delay can cost you hundreds of thousands or more over time. Welcome to Fundamentals of Investing. Today we're talking about the costly mistakes that keep high-income earners from building real wealth. I'm Brian Dress, Director of Research here at Left Brain and also an investment advisor, joined as always by Nolan Langford, our founder and CEO. Nolan, welcome to the program.

Thank you, Brian. This is an exciting topic and I can't wait to get started.

Excellent. Just jump right in. So at Left Brain, we help high-income professionals, especially executives, take control of their equity comp, reduce risk, and build a strategy that ultimately helps them build wealth. And we get it. You're juggling work, family, and life. There's a lot going on. But when financial strategy takes a backseat, the cost of inaction can stack up quickly. Are you making $400,000 per year, maybe $800,000 per year, or maybe over $1 million per year? Then you might be making one of these 7 costly mistakes and not even realize it. Now, for the people that we speak to, that we— that's our niche. We work with a lot of executives that work at publicly traded companies. There are 3 hot topics that almost always come up. One is consolidation, getting everything in one place so that they can get a cohesive strategy. Number two is no strategy. So a lot of people have a lot of accounts, but there's not really any strategy behind it. And then number three, and this is a big one, who's watching my money? Again, these all kind of filter together. But a lot of people that we encounter that aren't clients yet are wondering about these three hot topics. So we'll get through— well, as we go through these seven mistakes, We'll talk through all 3 of these as well. So let's unpack the most common pitfalls that we see and how you can avoid those. So we'll start with number 1, and that's holding too much company stock. So Nolan, you and I did a video just a few days ago about company stock and the strategy around that. What ends up happening with a lot of executives is that they own stock in their 401(k), they own company stock in the form of RSUs or restricted stock units, ESPP, you know, employee stock purchase program, And even some higher-level executives have stock options. So that's a lot of concentration potentially in the stock for the company which, with which you work. This one's big. Overconcentration can be a risk multiplier. If you own a lot of your own company stock and there are a couple bad quarters, you could take a huge hit to your financial picture. So Nolan, talk about the risk of overconcentration that we sometimes see with company executives in this situation.

You know, I would say if you have an opportunity to buy your publicly traded company stock, then I think you should kind of consult with a professional to see if your company is worthy of investment. Because a lot of times the executives have this sense of loyalty or duty. That's right. And they buy it kind of just because. And I know you mentioned we're talking about overconcentration here. You're right. But the big risk is, hey, if I work for a company that's not a prosperous, thriving enterprise, and the stock doesn't do well, then yes, any exposure is gonna seem like— [Speaker] Right. [Speaker] Too much exposure. On the other side of it, there's a lot of companies that have performed very well the last 5 years or so. So if you're an executive at one of these companies that is thriving, then you could have overconcentration just because you have the stock, the stock's done well, if you haven't trimmed your position, you could have a lot of it. And so you definitely— something executives should definitely take stock of. If it's a thriving enterprise and the outlook is really healthy, maybe you would let overconcentration go a little bit further. Okay. But if it's a company that is not doing so well, you certainly want to evaluate your exposure. Now, it's on the other side of that, Brian, is we see a lot of people who are underexposed. So if you're an executive at a thriving enterprise and you have no company exposure or very little, you may want to rethink that as well.

Yeah, a lot of the times these things get on autopilot because, you know, a lot of times money is just taken out of your check and you buy company stock in a number of different formats. And so we want people to take more stock of exactly what they're doing and be more intentional with what the strategy is around this. I'm glad you mentioned loyalty. So I think a lot of times people think it might be disloyal to sell some of the stock that they've accumulated. Because they work for a company, they like what they do there, they like the people they work with and all of that. But obviously we have to be loyal to our families and make sure that our families are set up correctly as well. So making sure you have a strategy around all this exposure you have to your company stock is really important. Also, taxes come into play here too, Nolan. So there are a lot of different tax consequences to buying and selling company stock and all these different formats. Again, we'll refer you to the other video that we made on company stock for a longer and more in-depth look on this. But can you talk a little bit about tax consequences and how you think about that for company executives who hold company stock?

That's a big consideration. And for a lot of these corporate executives, you're talking about earners that are in a 37% tax bracket. So, you know, to think about taxes up front is not insignificant. And I'll just remind the viewers, we're not accountants. We, you know, for every viewer here, these are successful executives, so I'm sure you have your own counsel. We suggest you go for them for tax advice. We kind of are on the planning side, so we're not giving tax advice. We're just talking about the planning for taxes. So first thing, if I'm an executive, a client executive comes in as a client, we want to think about, Brian, how much of my overall net worth Am I comfortable being exposed to Company A's stock?

Sure.

That's kind of how we want to think about it. And so let's just say it's 10%. I'm comfortable. My net worth is $5 million. I'm comfortable having 10% of my net worth in this company stock, $500,000. Right. Now we just need to decide, there's a lot of ways that we can get exposure to this publicly traded company for our $500,000. And let's think about what, how we want to kind of carve that up based off our situation, taxes, liquidity needs. Right. Um, but there's a lot of different accounts that I can participate in and get that exposure to that company stock. And that's where the strategy piece comes in.

Excellent. So I definitely want to, again, we're, we're gonna refer you to that other video. We'll put it on the screen here. Um, but what's important is that this is a huge part of potentially of what you're doing financially. And so it's something that, uh, we think it's a mistake if you just leave it on autopilot and don't do anything and have a strategy around it. So. That's mistake number 1. Let's move to number 2, which is neglecting tax planning. So Nolan, we talked a little bit about tax planning in the last mistake there. But one thing sometimes that happens is that, you know, some people are just paying any tax is anathema to them. And I understand that. But, you know, sometimes there's a trade-off between avoiding paying a tax on, you know, for instance, selling a stock that's in a gain versus avoiding taking a loss on that by just holding it in if that stock is kind of on the downstroke. So talk to me a little bit about how you balance the two things. So, of course, we want to do the best we can in terms of making investment decisions, but then there's also the tax piece around it. Talk about some of the mistakes you've seen people make around this.

You know, this is a tough one. And clearly, if we're talking about paying taxes after a gain, these are taxable accounts. And so just to remind the viewers, if you have money in an IRA account or 401(k) account at work or a SIMPLE plan and you sell stock, then, you know, the gain part, you know, really doesn't— right, doesn't apply to you. But for everybody else, for tax planning, it's something we need to consider, but it can't be the only thing we consider when we decide whether or not we're going to keep a position and hold it, or whether we want to kind of get rid of it. And that's where we, you know, we get these anchoring and these other sort of biases, cognitive biases that we tend to get, and we need to kind of get rid of them. You know, the way I like to think about it, Brian, is, okay, we have $100,000, okay, in this security, right? Forget what the potential capital gain or capital loss is. And, you know, hey, if that was cash, if it wasn't in Stock A, if it was cash, would I use $100,000 to buy Company A? Okay. So that's a good thought exercise for a way to think about it. Okay. Because we also have opportunity cost for keeping our money in this opportunity and being handcuffed by taxes. So many ways to think about it.

Yeah, it's a real hit when you sometimes if you sell a stock and it's kind of going down and you have to pay a gain on it, that psychologically hurts. But sometimes that's the best decision based on all the inputs of what's going on. So that's something that— that's a mistake we've seen out there is being too concerned about taxes when you may lose money by trying to hold on to a stock to avoid a gain. So that's what we're trying to stress there as well. So what about tax planning as well? So Nolan, sometimes you know, it's February, March, we're getting all our documents together for the accountant and it's time for filing last year's taxes. But honestly, that's too late to sort of make plans about what we're going to do from a tax perspective. So how do you think about tax planning? When do you think about tax planning? I don't think April 14th is the day to do that. What do you think about that?

No, if I'm an executive, you know, I have to be really careful. The first thing I want to pay attention to is what my adjusted gross income is.

Sure.

And how— where I am as far as these tax brackets go. If I'm in a situation where I'm bumping, you know, up against the 24% bracket, right, and I'm kind of right there, and I know, you know, I'm real close to getting to the next, to the 32% bracket, I want to be real careful when I'm making my elections for the next tax year. And let's talk practicalities here. Let's say I am close to the 24% bracket and I know what I want my exposure in the stock to be. I can decide, you know, how much of the company stock I want in my 401(k) as a percentage, if I should participate in the employee stock purchase plan, which is after-tax. Should I put extra money in the deferred comp plan, which is a pre-tax plan? So every dollar I put in reduces my income. So maybe I do need a little bit of extra room. I'm close to maybe getting out of the 24% bracket. Maybe I'm scared about leaking into the 32% bracket. Maybe it makes sense to participate in a deferred comp plan at a decent level. You can probably kill two birds with one stone. One is you reduce your income this year, but if you have a goal that you're funding in the future, it also gives you a dedicated pool of money for that goal in the future. And we've seen a lot of clients use this successfully in paying for their children's college education. Sure, we know the dates that it's going to happen. I can direct money out of my paycheck today, I can save money on my federal taxes today, and I can be funding a future, uh, expense in the future. So those are some things that we want to think about when it comes to taxes, but you certainly want to be proactive and you do want to have a strategy.

So Nolan, you just said an awful lot there, um, Which makes me think, you know, it's difficult if you're not spending your whole day thinking about these things. You've got a job to do at the company with which you work. It's hard to think about all the nuances that go along with all these different plans and all these different options that you have in terms of wealth building. So talk a little bit about how a financial advisor like Left Brain helps in this area.

So I think you mentioned it earlier, you know, there's a kind of a few deficits that I find that a lot of executives areas that they need help. And most executives are hardworking, they're successful people, a lot of them are Type A, and they have a life, you know, they have a spouse, you know, they have families. And so time is really, really precious. A lot of executives travel if they're early or mid-career. So not a lot of extra time to maybe spend more time managing their financial affairs as they would like. Right. As you mentioned earlier, there are 3 things or 3 areas that I think these corporate executives or successful executives can use help. One is consolidation. So we see this often. There are multiple accounts. It's not unusual to run into a family with 6 to 8 different accounts at different institutions. Sure. And some of it may be necessary, but a lot of it is just kind of duplication and leakage. And so you can save yourself— these executives can save them— you can save yourself a lot of time, energy, and effort by consolidating the number of institutions that you're working with. That's right. Particularly if you can have one trusted financial advisor. It makes your life as an executive a lot easier. So that would be the first one.

Okay.

The second one that you mentioned is a strategy. You know, if I'm a success— successful executive, and you're talking about incomes earlier, $400,000, $750,000, etc., well, if I retire and I need my income to be $350,000 a year or something, I need $10 million in net worth or in investments in order to be able to generate. So what's the strategy to get you from where you are today to the $10 million? Right. And then once we get there, what's our strategy on generating the $30,000 a month I'm gonna need to support my spending the rest of my life? So a strategy that is cohesive, that kind of starts early. Yeah. So we can be proactive and not reactive is the second area that a lot of executives need, need help.

Perfect. And then that third one, of course, is who's watching my money? If I've got 8 or 10 accounts all over the place, well, nobody's watching your money. So that's, that's really where we come in and really help a lot of clients from that perspective. Let's move to the third mistake that we see, and that's no real plan or distribution strategy. So Nolan, a growing pot of money is great, but it's not a plan. It's just accumulating money. So, you know, I understand people in their 30s, 40s, that's what they call the accumulation phase. And so I'm going to go out there and try to make as much money as I can from an income perspective and just put it in accounts and let it grow however it does. We think there's a better way to do things, and that's having a plan. Even if you're 35 and you're making a nice amount of money, you know, it's time to sit down and figure out what's the game plan. Like Nolan said, we do see professionals out there making $750,000 a year, but they've got no clear idea of when they can stop working. They— all they know is working, making money, but they don't know when it is that they have the ability to retire. So how do you think about when we try to approach this problem for clients. How do you think about that?

So this is a, uh, this is a big one. You brought up a couple things to really gnaw on and think about. And one is most investors have been successful in accumulating assets, right? Been very successful in living below their means and watching their net worth grow. And that is wonderful. It gives us the raw energy that we need to turn it into a lifetime stream of income.

They know how to hunt.

More or less. Yes. But when it comes time that you stop working for a paycheck and it's time for your asset base to give you the income that you're going to need to spend on the first of every month, that is a different view of the world. Yes. It's a different skill, it's a different thought process, and it's a different energy. And you know, it's funny we're talking about this topic. I had a conversation with a client who has been a business owner for a very long time. Okay. Finally, the business is winding down, and he's late career, but the client is still in his mid-50s, early mid-50s.

Okay.

And for all this time, he's this typical investor that you and I are just talking about, kind of this gunslinger, this investor that's been really good at saving money and accumulating assets. And waiting for them to grow. But now we're at the point where it's a different skill needed, where he needs to actually start withdrawing the money. And the reason that this one came up is we're talking about this topic is we do manage some accounts for him. But like a lot of clients, most of his money is tied up in another plan outside of what we've managed. So he's kind of managed a lot of his money on his own, just some of a preference. And some just because of need, because of the tie-up feature before retirement. And so we manage some of his money, but he's kind of acted as his own advisor kind of by default. But now we're into this part where we're in this pre-retirement discussion and we're talking about distributions, required minimum distributions, required beginning dates for Social Security, the tax consequences for IRMAA and things like that. These are things that are way beyond, you know, we're having discussions. It's way beyond things that he's competent in. So I would say, you know, this is something where you should bring in help. A lot of these elections that you make are tricky. You know, we didn't even talk about distributions. A big distribution that a lot of these executives will have will be the pension election.

Oh, sure.

You know, if you have a pension and you're lucky enough to work for a publicly traded company that has a pension, they'll offer you opportunities to distribute your money. And that'll be another distribution opportunity that investors will definitely need to give some thought and pen and paper to. Okay.

We talked about early and mid-career. Those people are accumulating. When we get to mid and late career, then we got to start thinking about how do we distribute this money out and set up income streams that are going to replace the paycheck. So when is the time to start thinking about your distribution strategy? So again, it's not going to be the moment, the day you're getting that gold watch from your company. That's not the day. To think about your distribution strategy. Talk to me about how you manage that with clients as they're moving toward retirement.

You know, I think from a time standpoint, Brian, I think mid-career is the perfect time to really think about this. And for most clients, just to put an age around it, I would say sometime around the mid-40s.

Okay.

This is where clients are typically advancing. They typically are at that SVP level. I'm sorry, the VP level or headed toward VP. SVP, excuse me, is late career, but They tend to be on that VP track. And that's really where you kind of want to think about it. And I know that seems early, but kind of not really. If you think about the average corporate executive at publicly traded companies, you know, it's very common to see something happen where mid-50s, they're kind of out.

Yeah.

And if you're— we're talking your mid-40s, it's not that much time. The other thing that we need to think about and the reason that we want to start early is a lot of these accounts, it takes years to fund them. To a level that's significant enough to really bridge gaps or create paychecks. So you really do kind of want to start early, and I want to layer. We, uh, here at our firm, we talk a lot about buckets. You know, you can have a $10 million net worth, but we want to look and see what buckets you're filling up. Is the money in a tax-free bucket? Is it in an after-tax bucket, or is it in a tax-deferred bucket?

Right.

The way you fill up those buckets, or, you know, you can have one Listener or viewer could have $10 million all in a deferred account. Another viewer could have $10 million all in a what we call freedom bucket or bucket 3 or after-tax brokerage account. And both of their abilities to be able to retire early are going to be completely different.

Okay. It's a little bit of a foreshadowing. We're going to get to that topic here in a minute. But if you are in that mid-career stage and you haven't thought about what you're doing distribution-wise, you might be making one of these costly mistakes and it might be time to reach out to somebody that might be able to help you set up that distribution strategy. So that's, that's mistake number 3. Let's move to mistake number 4. This is a big one, Nolan. Lifestyle creep. So, you know, when we're in our 20s, we're struggling trying to make ends meet. You know, maybe we got young kids, early 30s, and, you know, we spend what we make. But, you know, as people move up that corporate ladder and they start making more and more money each year, this thing called lifestyle creep comes in. So tell me, how do you define lifestyle creep and how does it impact network, uh, high net worth investors like the ones we're talking to today?

Oh, you're setting me up to be the bad guy to tell people not to spend everything that they earn. And as they earn more, they should actually increase their savings at a commensurate rate. That's the tee-up, right?

That's right, exactly. Sometimes we got to be the bad guy here, Nolan, but that's, you know, we got it. Medicine doesn't always taste good, you know.

Okay, but you're right, Brian, that's exactly what we see as these executives climb the corporate ladder. Raises, bonuses, more stock options, restricted stock units start to vest, and as a mid-career executive, you know, you have a family, you have kids, you want to go on vacations, kids need braces, they need to go to college, and then eventually the kid, you know, the kids need more space. And so you move up, you like a nicer house, you want a nice ride, and one thing leads to another, and there you sit. Your income has gone up, but your expenses has gone up, have gone up at a commensurate rate. So we We always just tell executives, one thing to think about is as your income grows, think about increasing your investment at a commensurate rate and pay yourself first so you don't fall into this lifestyle creep. I think it's sort of a blessing and a curse. The way that corporate America is set up today, a lot of these plans that you and I are talking about, the deferred comp, employee stock purchase, 401(k) plans, restricted stock, These are kind of auto-funding programs. They just come out of the paycheck automatically. So it's sort of like a set it and forget it. I think that's worked well. You know, we have trillions of dollars in these plans. So it has worked, but almost too well. Because I think psychologically, we think, now that I have my paycheck, if they've taken out every deduction you can think of, including my health care, FICA, all of this stuff, What I get left is mine.

It's all mine.

Yeah, correct. But there's one more investment we'd like to make, which is our savings for ourself. Yeah. And we can do that right out of our checking account automatically. But that's one of the things that can lead to lifestyle creep, overspending, and it can lead to all sorts of bad habits. Yeah.

So the most successful people when they move toward retirement are the people who didn't live paycheck to paycheck when they're making $400,000, $500,000, $600,000 a year or whatever the number is. You know, like you said, paying yourself first, which means that means I'm taking money out to save before I spend it on anything else. And that's definitely good advice that has worked well for a lot of our clients. A lot of our clients are really good savers, and now that they've got a lot to show for it, which is a really nice nest egg moving into retirement.

So, and we should actually say investors. Yeah, the word savers is kind of passé a little bit. It kind of denotes you know, getting a toaster for opening a passbook account or something. You're right. But you're right, I get your point. These people are not spending everything they earn. There's something left over, and that leftover, you know, those investors have discipline enough to actually invest those extra funds that then earns a return that compounds, that leads to a bigger bucket of money that they can draw on later in life.

Yeah, I guess we could almost say, Nolan, that this mistake that people make is lifestyle creep, but it's also not taking advantage of compound interest. And that's definitely something we want all you investors out there to take advantage of. So that's number 4, lifestyle creep. Don't be a lifestyle creep.

Or creeper. Don't be a lifestyle creeper.

Let's move to number 5. That's DIY investing, do it yourself. Despite the complexity of all this. So we've spoken about a lot of these different issues that come up when you're an executive and all these different types of pay and everything else. Things are complex. More money, more problems, right? So a lot of people are do-it-yourselfers. You know, again, when you don't have that much money, it's not that big of a deal. But when you got a lot more money, it becomes a lot bigger deal. A lot of times we hear from people, not our clients, but, people that we speak to that are investors out there, fee-conscious, they're worried about fees, but then there's a trade-off to that, which is time and mental bandwidth that they had to spend if they're do-it-yourselfer, right? And so we speak with do-it-yourselfers often. What are some of the pitfalls you see coming out of the do-it-yourself movement in the investment world?

So, um, this is an interesting topic, and, um, The do-it-yourselfer, that tag, we don't want it to have a negative connotation. We're just talking facts. These are people that handle their own financial affairs. I think at the beginning, we all have to handle our own financial affairs because we don't have enough to give them to somebody else to make sense to pay them because there's just not enough there. So until we get into a certain level, All of us are kind of do-it-yourselfers, and corporate executives are no different early career. There's a certain point where investors get to where the numbers get big enough, the sophistication is needed, the situation gets complex enough where you want to bring in a professional. And you don't want to miss that, you know, kind of that time. Now, say the time somewhere is between $500,000 and $1 million. Okay. Is somewhere is the, is the switch-off. But going back to do-it-yourselfers, when the numbers are small, you can make mistakes. The mistakes won't be crucial.

That's right.

But as the net worth grows, the mistakes can become a lot more serious and a lot larger, and in some cases irreversible. And one of the easy ones that we see, a lot of things that do-it-yourselfers, mistakes that they're making where you can bring in a professional, be helpful. The first one I'm thinking is just like 401(k) accounts. An easy thing is "401(k) account, how should I invest? I have all these fund choices. I have my company stock. How should I spread my money out?" Right. And then another one related to that one is beneficiary designations. I can't tell you how often we run into an investor and we do a check on their 401(k) account to check who their beneficiaries are. And you'll be amazed. Sometimes you see some crazy things. Some person has been divorced. But they haven't changed their beneficiary, you know, to the new beneficiary. Some cases we've seen executives not have any beneficiary at all, or in some cases, what, on what some cases is their largest asset. So you have to be really careful. Those are a couple that comes to mind on the do-it-yourself investing possible mistakes.

[Speaker:JOE] Okay. I think a lot of people think of it in terms of performance, right? And so the most obvious thing that a do-it-yourselfer might find themselves doing is having an underperforming portfolio. But then there's all these other huge blind spots that they don't even think about. Like you said, beneficiary designations, you know, making sure that your wishes are carried out when you pass and things along those lines. Those are the things that, you know, we're going to make sure that we cross all those cross all those T's and dot all those I's for you as advisors. So that's certainly something we want you to avoid as a mistake, is, is a do-it-yourselfer and missing those huge blind spots. So that's do-it-yourselfers. Let's move to number 6. That's neglecting liquidity. So net worth looks great on paper, but the question is, can you access it? So that's, that's the essence of what liquidity is, is are my funds available to me at a moment's notice? What we see sometimes is a lot of times people have money tied up in a number of different illiquid vehicles. So private equity is one, deferred comp, compensation is one, real estate's a big one.

Mm-hmm.

And then there's the final one, which we're going to get to in number 7. But retirement accounts, sometimes retirement accounts are the lion's share of what people have in their nest egg. and you can't touch those until 59 and a half in most cases. So how do you think about liquidity? And then Nolan, let's talk specifically about real estate. So this is something we hear all the time, you know, should I invest in real estate? You know, uh, let someone else pay the, uh, mortgage for me and all that stuff. I'm gonna give you the floor here to hop on your soapbox on real estate investing as it relates to public markets investing and what your thoughts are. When you compare and contrast the two.

Yeah, so there's a lot to digest there. I would, we are definitely gonna talk about real estate, but I think the point we're making is liquidity and how important liquidity is, particularly as you approach retirement. So let's just talk about a typical scenario. You know, Executive A, Ann, is 55. Company just came out. They're downsizing her whole position. So everybody in the company at that level is out. There's a reorg, but they're also giving her an early retirement package.

Okay.

All right. So, Ann has a decision to make whether she wants to go back to work at any job or whether she just wants to call it quits and retire. Right now, if she goes back to work, liquidity is not a big issue. But if Ann decides 55 is enough and I want to retire now, then we have an issue. Because we need to get income into the household. If Ann's lucky enough to work for a company that has a pension, those often don't start to age 65.

Right.

If she doesn't, or even if she does, Social Security, the earliest she can take it is 62. Yep. And even if Ann says, well, I got $10 million in my 401(k) at this company, I'll live off that, she can't touch that without penalty until 59 and a half. So there is a— no matter what scenario, there's a gap between today and when this book— bucket— buckets of money generate the liquidity I need to support my living. Sure. And so that's where liquidity becomes really, really important. And that's why you want to start early. You want to plan for those possibilities and for that bridge to get you from here to when all those other time periods kick in, when I can access and tap those other buckets of money.

Okay. We're going to talk about that here in a minute. But I did want to talk about illiquid investments. So, Nolan, I was just at the Morningstar conference a few weeks ago. All they wanted to talk about there was private equity, private credit. Those are illiquid investments. Alternatives. I've had a number of investors and clients talk to me. Do you guys do alternatives? So those are also illiquid investments. And real estate, the ultimate illiquid investment. You've got to find a broker to to sell to another broker, and it takes some time to sell a real estate property. So talk to me about, you know, I think a lot of people are attracted to these investments. I also think there's a lot of marketing around these investments. And so we're hearing a lot about this. Just tell me what you think the value is of a liquidity, you know, forgetting about the retirement account of it all, but let's talk about the, um, you know, what you really gain from having liquidity in your investments.

Liquidity is oxygen. It's the ability to change my mind, tap my money, do something different, change direction. And so when you restrict that from me, you should give me something in return. You should pay me a higher return.

Exactly.

Because my money is off limits. And I know that they're very popular these days. They've caught some mystique again. I would just caution clients to be really careful. Let's start with real estate. You had mentioned that first coming out of the blocks as far as illiquidity and illiquid assets. Let's talk about that first, and then we'll talk about the other private markets here in just a second. Sure. I think if you're a corporate successful executive, You really have to think hard before you think about getting into the real estate game. Now, we're not talking about the family home.

Right.

That's a completely different conversation. We're talking about investment in real estate as real estate investment, trying to be a real— building a real estate portfolio for current income or for appreciation and for whatever the reason is. Yeah, I would just— we don't see it a lot from corporate executives just because of the time and intention it takes to do it. And most corporate executives, the ones that are successful, that are climbing, they're all in on their day job, on getting to soccer practice, on taking their wife out on date night or their spouse out on date night.

And so that's enough.

Yeah, that's enough. And I would caution them not to. What we have seen is a lot of executives that have gotten into real estate, as they start to advance in their career, at some point they flip a switch and say, I have got to get out. I can't do this. And we've actually seen that this year. We've seen a couple that come— that came in, had a real estate portfolio, getting ready to retire. They wanted to liquidate it because they didn't want all the work involved with managing real estate portfolio. So I would say real estate, I would— if you're thinking of getting into that activity, I would caution you to kind of think twice, putting aside the fact that you can probably get equal returns in another vehicle, right? Without all the mental headaches.

Yeah, I mean, it's sometimes, I think when people think about just the investment of it, it sounds good, but they don't think about the sweat, blood, sweat, and tears that they may have to put into it. So, and then we'll finish it out, finish out number 6 here, Nolan, with you talking about private market investments.

Yeah, so been a lot of rage these days about private equity and here recently private credit. And these markets, though they seem mysterious, aren't that different from public markets. So we have publicly traded stocks that trade. There's about 5,000 that are substantial. Most people will pay attention to. It's about 5,000 here in the US that are publicly traded. But we have hundreds of thousands of private enterprises.

Sure.

They're just not— you can't buy shares of them. They're under private ownership. Yep. They haven't traded on publicly exchange— on public exchanges.

Right.

And so these markets investors have access in the past, and in the past to be able to invest in these markets, you know, these hurdles you had to jump through, the government, the SEC is worried about people not having liquidity, not being sophisticated enough to understand the risks. So there are some rules based on who can participate. Because of that, there's an air of exclusivity into these markets that I think people think are really interesting. But there's no reason on paper other than illiquidity that you should earn a higher return because something's private versus public. As a matter of fact, you think common sense-wise, it kind of be the opposite, right? If you give me a security that's been highly vetted, highly scrutinized, where I get all this documentation that has gone through the SEC, and I get regular public statements, Yeah, exactly. You think that investment would be superior to one where I get no information and no liquidity?

Yeah. And the, the premium for having these illiquid investments isn't really as much in evidence in the last few years either. So we'll put some statistics up on the screen about that. But the illiquid— illiquidity premium doesn't seem to be so much there anymore. We'll finish out this section by saying a strong financial position includes a plan for cash, not just investments. And so the essence of liquidity is making sure that you have access to your cash, and that needs to be part of your plan. We're gonna finish out the 7 costly mistakes that high net worth investors and executives sometimes make, and we're gonna start, we're gonna finish with number 7, and that's having all your money in retirement accounts. So this can be common, Nolan. Again, this goes back to the lifestyle creepers out there where they don't necessarily have that much taxable savings because they've put, you know, a lot of save, maybe they're maxing out their 401(k) and then everything else that comes home, they're going right back out the door spending it on something else. So that's really huge, Nolan, is making sure that you've got money in all the 3 buckets. You've got the Roth bucket, you've got the tax-deferred bucket, and you've got the taxable freedom bucket. Like you said earlier in the program here today, if you're gonna retire before 59 and a half, you're gonna need a bridge financially, and that's taxable savings. So talk to me about how you approach this with clients and some of the conversations that you may have had about balancing those buckets and not making the 7th mistake.

So the first thing to discuss is, you know, is there a plan in place where you're accumulating taxable savings? And there's ways you can put that in place through the company plans, actually. Some of those plans will actually fill up your freedom bucket. It makes sense to fund them.

Right.

But the other thing to think about is, you know, the end goal, which is why you need a strategy and a trusted financial advisor. If I'm mid-career and I know I want to be prepared for when I get late career, for when they come with that package, 'cause I know they're gonna be eliminating my position. So imagine I wanna be in that position where I'm at the $10 million or $5 million mark. And if it's at the $10 million mark, I may say to myself, I wanna be 40/60. I'd like to have 40% of my money in taxable. And I'd like to have 60% of my money in things that are tax-deferred. And now I have a bridge of $4 million. That can last me until I need to start tapping those other sources of money. We can do the math. If it's $5 million, then it's $2 million taxable. It might take 40, 60. But my point is we need to have a plan. We need to think about it upfront. We need to work backward, and then we need to talk about some tactics that are gonna help us to accomplish it.

[Speaker] Okay. To that end, and we've talked about this a little bit as well, leaving things on autopilot, who's watching my money? Um, a lot of people that we speak to that aren't clients that, you know, maybe prospective clients, um, they've got 401(k)s all over the place. Maybe they've changed jobs 2 or 3 times. Maybe they have, maybe there's, uh, equity comp left behind at an old firm or, uh, a number of different things that could happen. Tell me about what you think about leaving those 401(k)s behind. And, and when we talk about who's watching my money, how does that all fall together.

Yeah, we're big proponents here of take your money with you. Be very proactive. If you've worked for a company and you've had money invested at that company in one of the plans and you leave, um, you really need to think strategically if there's a good reason to leave it there. A lot of times it's not, right? The other— so we see a lot of mistakes, um, around this issue. One of them is, I actually have seen recently an executive that left a company, went to a new company, and rolled over the old 401(k) into the new 401(k), which is a really big— it's a big mistake on his part, quite frankly. So you really have to be careful. And you really want to have some strategy around it.

[Speaker] Absolutely. We don't want people taking the path of least resistance. That's kind of what happens in a lot of these cases is, you know, it's there, someone's watching it, someone's dealing with it, I'm not going to worry about it. This is something that happens with DIY investors. You can kind of draw a lot of these different mistakes together. You know, if you make one of these mistakes, you're probably making 3 or 4 of these mistakes, Nolan. And that all comes back to not having a strategy or not having a plan. And that's what we're really trying to stress to all the viewers out there, all the investors out there, is make sure you've got a plan. And working with a financial professional like, like us is a way to affect a plan like that and walk you through your whole journey over many decades. This is a long-term process, Nolan.

Yeah, you definitely want to be proactive and take control. There are many situations. You gave the example of an executive worked at a couple of jobs, had some money out there in different plans and kind of left it. I made the example of a big mistake. Somebody can move it with them. But no matter what you want to do, you want to take control and take stock.

That's right.

So imagine we had a— unfortunately, we've had clients that have passed away recently. And one of the things that an executor has to do when somebody passes away is take account of all of their investment accounts and where they are.

That's right.

And the more institutions an executor has to deal with, the more complicated their job is, the longer it takes an estate to get settled.

That's right.

And in some cases, it has taken executors years, in some cases, to track down all of the accounts that an investor had. So consolidation works and benefits investors in a lot of different ways, and we haven't even gotten to the investment piece. Because Brian, if I'm an executive and I'm investing in this 401(k) at work, what type of investment options do I have?

Not very many, unfortunately.

Correct.

So that's exactly it, you know, at your 401(k)s, at your old 401(k)s, you may have a handful of funds that you can choose from. If you work with an advisor like Left Brain, you've got almost infinite, infinite investment options. So that's definitely something you want to consider. So those are the 7 mistakes that we see in a lot of high net worth and executive clients and executive investors. Don't be one of these people making these mistakes because it can cost you hundreds of thousands or even millions of dollars over time. If one, even one of these mistakes sounded familiar to, to you, you're going to want to grab our free checklist and that's going to be called the High Income Professionals Wealth Checklist. We're going to put that down at the bottom of the screen, a link to our checklist. It'll help you quickly self-audit your strategy and avoid these exact pitfalls. And if you are making some of these mistakes, we definitely encourage you to reach out to someone who's a professional that can walk you through some of these steps and definitely we'll put our information down at the bottom of the screen. If you want to book a strategy session with us, the information is there below. The longer that you wait, I want you to remember this. You know, we know a lot of these people that we speak with that are executives and high net worth investors, they're busy. But the longer you wait, the harder it's going to be to correct any mistakes that you make. So don't let busyness stand in the way of your financial clarity. Book that strategy session with us. With that being said, Nolan, any final thoughts on these 7 mistakes that we often see with investors?

You know, I was just thinking our first topic we covered was holding too much company stock.

Yeah.

And on a good day, you could have almost asked me to change that to holding too much cash. And so my, my thought is if we do a follow-up series, I think one of the things we definitely want to mention is the number of executives we've seen that just has cash at the bank, right? We talk about these successful executives being busy, and so they can just have cash piled up with the intention to do something with it. Yeah, but banks right now aren't paying very much interest. That's right. And so these executives are far— are falling behind. And that's another thing that keeps them from compounding their wealth that we think investors can do themselves well by taking advantage of.

Yeah, if you're sitting on a pile of cash and it's not earmarked for something, definitely get in touch with us. We can talk to you about some opportunities that we see for cash replacement. With that being said, if you like this video, please drop a comment below with your biggest takeaway. Hit the like button and subscribe to the channel. Hit the bell for notifications. You'll find out every time we're out with these videos and we're out every few weeks and we've got more content coming for you. High income professionals looking to build lasting wealth. This has been Fundamentals of Investing. Nolan, thank you for being with us. We want to thank the viewers for being with us, and especially those viewers that have been with us for the last few years watching all these videos. We hope you've really enjoyed it and gained something from it, and we'll see you again next time.