Financial Opportunities Uncovered: A Keeler & Nadler Family Wealth Podcast

The Blind Spots That Cost DIY Investors Thousands

• Andy Keeler

Share episode

Financial planning is a complex system of interconnected gears—turn one, and you turn several others. While many people take pride in managing their investments, they often miss this crucial perspective, leading to costly oversights and missed opportunities.

In this eye-opening episode, we explore why even the most sophisticated DIY investors—doctors, lawyers, CPAs, and retired investment bankers—eventually recognize the value of professional financial guidance. Mark Beaver, CFP®, joins Andy us to share real-world examples of how seemingly small financial decisions can have outsized consequences.

We dive deep into the tax implications of investment decisions, revealing how active trading in taxable accounts can trigger significantly higher tax rates and even Medicare premium surcharges that cost thousands annually. One client was unknowingly paying 37% on investment gains when they could have paid just 15% with proper planning. 

Beyond taxes, we examine common blind spots in estate planning (like unfunded trusts), retirement income sequencing, and the challenge of staying current on constantly evolving financial strategies. As Mark explains, "It's not just the decisions you make, but the opportunities you miss because you didn't know they existed."

The most compelling reason sophisticated clients delegate their financial planning to Keeler and Nadler? It's rarely about capability but more about priorities. As one client put it: he wanted his wife cared for in his absence, valued our holistic perspective, and recognized he simply couldn't keep up with the evolving financial landscape across multiple disciplines. By delegating these responsibilities, he gained something far more valuable than potential cost savings — peace of mind and time to enjoy his retirement.

Have questions about your financial plan or wondering if you've overlooked important opportunities? Connect with us on LinkedIn to continue the conversation.

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations.

It is only intended to provide education about finance, tax, retirement and related planning topics. To determine which investments or strategies may be appropriate for you, consult your financial, tax or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results.

Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Keeler & Nadler Family Wealth is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Keeler & Nadler Family Wealth and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Keeler & Nadler Family Wealth unless a client service agreement is in place.


Andy Keeler:

If you are a financial do-it-yourselfer, today's episode is a cautionary tale. Perhaps you love investing, whether that's investing in individual stocks or taking a bit more passive and diversified approach by investing in mutual funds or ETFs. But beyond the fun of managing your own portfolio, have you left yourself exposed in other areas? Today, on Financial Opportunities Uncovered, we literally uncover the risks and pitfalls of doing your own financial planning. Yeah, that's right. There's more to the story than just managing your own investment portfolio. To help share some of the reasons so many of our sophisticated clients have turned over their wealth management to us is Mark Beaver, cfp, a senior financial advisor here at Keeler Adler and one of our regular guests. How's it going?

Mark Beaver:

Mark Doing great. Our kids are back in school, so we're happy campers.

Andy Keeler:

My son's heading to college, so I don't know whether we'll be celebrating or crying. Keeping the box of tissues handy Good idea, go Bearcats. Keeping the box of tissues handy Good idea. Go Bearcats. Right, go Bearcats.

Andy Keeler:

So the inspiration from this episode comes from a common interaction I have with folks when they find out what I do for a living. The interaction goes something like this so you're a financial advisor? I love managing my own money now that I'm retired. I read a lot. I really enjoy it. Given that my financial planning brain is hard to turn off, a rush of questions come to mind and it's frankly hard to decide which question to ask first. But no matter the questions or the order in which I ask them, inevitably the answer is the same Yep, I've done that. Yep, I have an estate plan. Yep, we've taken care of that. Basically, our innate overconfidence in ourselves kicks in. We covered that in the episode called why Smart People Make Dumb Bets the science behind gambling. Anyway, mark, can you share a scenario or two where a prospective client had all the answers, some of which proved to be dead wrong?

Mark Beaver:

Definitely can, and one thing that comes to mind for me when I hear of folks resisting advice like you're describing is they've probably experienced a bad version of advice somewhere down the line, and unfortunately, in our industry, many advisors and I'm doing air quotes right now which nobody can see. It's a term that's used way too loosely, and so it's not consistent that everybody is providing the same level of value. So, um, I wonder a lot of times if, if that propelled them to want to be a do it yourself or yeah, maybe the client feels the advisor either didn't provide value or they didn't act with their best interests in mind, right, right.

Mark Beaver:

If they saw an example of advice that overcharged and under delivered, I could see why they might think well, I'll just give that a try on my own. I think the podcast that you and Jake did a couple of episodes ago, so everyone should go check that out. You guys were talking about advisor fees and did a great job breaking that down and seeing are you getting the value out of the advice. So that's an important place to start. But back to your actual question yes, almost every time I've come across a DIYer, there's at least one piece of the puzzle missing. So, like you said, they might have a couple of things that are right, but it's not all together. They have the right concept or idea of what they're trying to do, but there's some kind of nuance that they might have overlooked that's going to have an impact on their choices.

Mark Beaver:

I like to say that in financial planning, you could think of it as a board that has a bunch of gears on it, and all of those gears are connected to each other. So whenever you make a financial choice, you're turning a gear, but what you might not realize is you're moving five other ones at the same time, and so I think a lot of folks are just focused on that gear that they're moving and neglecting the other impacts that that has In our world. A lot of times that has tax impact. So every financial decision that we're making has a tax implication, both in this year and likely down the road. At the same time. We're hyper aware of that because we live in this every day, but most people don't notice that.

Andy Keeler:

So I remember a few years ago you had a client that was working with an advisor and I would say this advisor is pretty typical more investments than planning and this advisor was touting more or less a very active investment strategy and he was using options. So you know, between those two things it sounds very sexy. It's great golf course talk. My advisor uses options, he shorts stocks and he's constantly reallocating my portfolio. How did that work out for the client?

Mark Beaver:

a DIYer and half not. They were paying somebody for the investment management, like you said, but then they were handling everything else supposedly on their own. But when we were talking about that portfolio, which did sound very sophisticated and really what they were trying to do was get a consistent conservative rate of return 3% to 4% and this was before money markets were back to paying those rates.

Andy Keeler:

Right, so really low interest rate environment.

Mark Beaver:

Yeah. So they really just wanted a little bit of return but be stable, and it was accomplishing that. But what they weren't paying attention to was the tax implication of that investment account not being in a tax sheltered account. They were creating a lot of taxable income from the investments themselves. So when you net out the cost of tax on the investments, they were really only getting about 2% net of the tax, and that's something you could have very easily done with something like- Not nearly as sexy.

Mark Beaver:

Yeah, short-term unibonds or CDs or something like that and not have to really pay to get that result. But it did sound nice like there was a very complicated, sophisticated thing going on. I've had other similar situations options or not where someone was buying and selling inside of an account like that and not knowingly creating short-term capital gains.

Mark Beaver:

Which are taxed at Ordinary income, so we know that we think about that constantly. If you sell an investment for a gain within 12 months, that's a short-term gain, so it's ordinary income. Generated a lot of that income, which then was added to all of their wages and everything else, and it was a nasty surprise when tax return was being generated.

Andy Keeler:

As opposed to being taxed at long-term capital gains rates, which a lot of people aren't aware. There is actually a 0% long-term capital gains rate, there's a 15% federal long-term capital gains rate and then there's a 20%, but most people fall in that 15. If this person were a high-income earner, they might have been paying 35 or 37% in income taxes on that, those short term gains.

Mark Beaver:

And I remember that was back in 2020, which was a year that ended positive. But we know February 2020, the market was down quite a bit. So there was likely an opportunity that they could have actually take some losses when the market was down to offset those gains. But again, not everybody is paying attention to that or they're not willing to do that at the time. But there are things that we're constantly thinking about and trying to do.

Andy Keeler:

Yeah, you just said taking losses. I'll come back to that in a second. You know, and and again we're kind of talking about. We're talking about taxes and this gear, as Mark alluded to, this gear that's turning, that you're unaware is turning when you're making decisions in your investment account. But when we talk about investments there's a tendency for folks to think, gosh, last year I was up 10%. Well, maybe the market was up 24%, or maybe you were up 20%. You think 20% is pretty darn good and it is, it's fantastic. Double the long-term average, but the S&P 500 was up 24%, so it's kind of all relative. I could boggle people's mind by asking them things like what was your 10-year average return? What was your standard deviation, what was your Sharpe ratio? Those are things they probably should know and we know about our portfolios, but again, you know just the investments alone. It's really important to really have some sort of true benchmark to know how well you're doing.

Mark Beaver:

Yeah, and if you bring Sharpe ratio up in your conversation, that should end it pretty quickly. I think you tend to see personal biases show up in these kinds of situations, like it would with anybody. Everybody's got them, we've got them just as much as anybody else. But with a DIYer you see things more often as, like you said, related to their investment portfolios, that you don't get with somebody having more of an objective perspective, an outside perspective on things. So one that I see quite a bit is hindsight bias, and so you place a little bit more weight on the investments that did well for you in the recent past and remember those quite easily, but then forget about the ones that didn't do so well, also kind of, I guess, multiple biases.

Mark Beaver:

You could have hindsight bias, survivorship bias as well, but yeah, when you're in the water cooler talking about which of your stocks you own, you're talking about the one that went up 100% out of your 10 stocks, the one that did really well, and so that kind of crowds your thoughts and you forget or you remember less and less of the ones that didn't do so well. Sometimes that lack of perspective also leaves someone blind to unnecessary risk that they took or even missed alternatives, meaning you might have had a stock that did pretty well. Like you said, it's up 20% last year and that's not bad. It's not a bad way to go. But when you compare that stock to an index or a similar sector of the market that that stock is in, there's a lot of times that we see that that index or sector did better with lower amount of risk or volatility. So did they really do that great?

Andy Keeler:

You know, in the grand scheme of things, they could have just done something very simple and less risky in those situations and this is the world we live in, so we're looking at it every day, we understand it, we're comparing one thing to another, so we kind of know whether the client is doing well or not. As I mentioned earlier, we have some very sophisticated clients doctors, lawyers, cpas and even a couple of retired investment bankers. All of them have the brainpower to tackle one of the many aspects of the comprehensive planning process, mark mentioned earlier. You might be doing one or two things right, but when pulled in multiple directions tax efficiency of their investment decisions, the tax impact of various decisions or financial moves like social security timing and Medicare, premium surcharges, how to address long-term care, and on and on and on.

Andy Keeler:

So when I asked one of them why they worked with us, the client provided some really interesting insights. First, he said he wanted his wife to be well cared for in his absence. More or less, if something happened to him, the rule was to call Andy. Second, he said that while he enjoyed managing his investments, he values our more holistic perspective. And lastly, he said frankly he just couldn't keep up with all the various tax, estate, investment, insurance and other issues and chose to delegate that responsibility to us so he could enjoy his retirement with peace of mind.

Mark Beaver:

I think that's a really underappreciated point that you just made, and it's maybe still debatable if all of these very intelligent people are capable of doing real financial planning for themselves. But even if they could, why should they? What are they trying to do with this whole retirement plan? And so I think that delegation part of it is actually extremely valuable to a lot of our clients. Like you said, many of our clients not only trust us to guide them through financial decisions, they also rely on us to get things done. There's having the knowledge to do the right things. Then there's actually doing them, and that doesn't just go hand in hand all the time. Life is busy. We're all busy. We've got things to do. But here, you know, in our firm and our team, we've got systems, we've got workflows, we've got institutional knowledge on how to actually make sure that these things happen.

Mark Beaver:

We've had clients that have started off as do-it-yourselfers but then later came back to us saying you know, well, I only did four of the 10 things I was supposed to do. You know, four years later, you know, and so that's just sometimes the way that life gets. I could totally see myself in their shoes if the tables were turned. We're all busy, like I said, and you know, do you want to spend your time first basically learning a new profession? Like you said, there's so many different areas that you would need to be proficient in to make good choices and then do all of those related tasks yourself. Or do you want to focus on the thing that you actually get paid to do and do well and let someone else take care of the rest?

Mark Beaver:

I think a lot of our clients appreciate that. They can just say you guys take it, I know it's going to be done. Right, I pay someone to take care of our lawn. Could I do that myself? Absolutely, I did it for a long time, it's not a problem. But I think it's money well spent and actually think of it as an investment, because now I've got a few hours every weekend back to spend with my family and do other things. I don't have to worry about that, and it doesn't hurt that they actually do a better job than I did anyway, you know.

Mark Beaver:

So I know that's not maybe an apples to apples comparison lawn care and financial planning. I think maybe good advice is more expensive than the landscaper, although there are some pretty fancy landscapes out there. So maybe not, but the outcomes are even more critical if you think about it. At the end of the day, if my lawn doesn't look perfect, it's not the end of the world. It's fine, but these financial decisions that we're making. If you have a big financial mistake, you imagine putting all of that stress on your own shoulders. It could cost you thousands of dollars. It could put stress on relationships, things like that. So that's a big burden to put on yourself.

Andy Keeler:

That's a really good point. You know, when somebody first starts out they there in their 20s, their 30s they don't have a lot of money. If they're doing it on their own, using mint or whatever for budgeting and Robin Hood for their investments, no harm, no foul. The downside let's say they lose 20% of a $10,000 portfolio costs them $2,000, right. If they make the wrong tax move, well, they're in a low income bracket anyway. So they end up paying the Fed an extra thousand bucks. But when you I like to use the term graduate at some point in your life you graduate to a point at which you really need next level planning, and a mistake, or a combination of many mistakes, or not even mistakes, just missed opportunities, can cost you thousands or even hundreds of thousands of dollars, especially if those mistakes are kind of compounding year after year after year. So you get to a point in your life where you would rather be spending your time doing other stuff. Anyway. You're not an expert at it, we're good at it, we have systems, workflows and all that kind of stuff. Plus your downside is so huge it makes a ton of sense to really outsource that. At that point, as I said earlier, when somebody replies yeah, I've done that, or yeah, I have an estate plan a million questions come to mind. I often remember an old Mark Twain quote it ain't what you know that gets you into trouble. It's what you know for sure. That just ain't so. Overconfidence and hindsight bias both play a role here, as we said, also poor experience of the previous advisor.

Andy Keeler:

If you manage your own portfolio and it's taxable that is, a non-retirement account do you take the opportunity to harvest losses Mark mentioned earlier a year like 2020, covid hits stock market drops 34%. You could sell a stock at a loss. Put that tax coupon in your back pocket, immediately turn around and reinvest the proceeds from the sale in an investment that's very similar to the investment you sold. Some folks that follow Warren Buffett one of Buffett's many quotes who shared on this show in the past, but one of them is buy low, sell never. And so some people would say why would I sell something that I've lost money on? I'm in it for the long haul Idea is you sell it when it's down. Maybe you love it. It's Amazon. It's down, you sell it. You turn around, you buy maybe Netflix or Walmart. You let that stock appreciate if the market flips around. You certainly don't want to miss out on that rebound, but you have that tax coupon in your back pocket to use to offset gains in the future.

Mark Beaver:

So you're staying invested the entire time. You know the suggestion isn't get out of the market, correct and take the losses. It's really stay invested, but just do it in a way that you're banking that for tax purposes. So, yeah, we were always in favor of staying a long-term investor. But you can do that in a lot of different ways, whether that means switching to something that's similar but not too similar, just for we won't go down that rabbit hole, um and and having that tax loss. Or staying out for 31 days and getting back in, you know, to avoid wash sale rules Again. No time to get into those details, but those are again more reasons, I guess, to have someone that knows what they're doing.

Andy Keeler:

Right. And if you have an estate plan, so you know the question I'll ask the question do you have an estate plan? Yep, I got that. Does it include a trust? Yep, we got a trust. Well, is it funded? Have you actually changed the ownership of your home or your checking account, your savings account, your investment account, to the trust? If it's not funded, that piece of paper is useless. If you have any accounts in either your name or joint with a spouse, have you attached a transfer on death affidavit? You might believe that you're in great shape, but maybe that just ain't so.

Mark Beaver:

Yeah, these kinds of things get missed all of the time. We could go down a really long list of stuff, but we've seen situations where I've seen this one multiple times where couples are filing separately. Their tax account or tax software might have suggested that, and there's good reasons to do that, but they were also doing Roth IRA contributions at the same time and we know that you can't do that unless your income is below $10,000 filing separately, which is pretty much no one. So I've seen that more than once, though where that was taking place. Similarly, I've seen two spouses maxing out HSA contributions at the family level, but that's an overarching limit, not an individual person limit. So that's that's something you can't do, and the HR people aren't going to know that. They don't know what you're doing outside of it. So just two quick examples.

Mark Beaver:

But we see this kind of stuff constantly and it's not always a negative decision. I think we talked about it before. Sometimes it's just opportunities that you missed because you didn't know it was an opportunity. We're constantly thinking about in retirement how much income is going on your tax return, because that might affect the taxability of Social Security. It might even affect your Medicare premiums. I know other podcast episodes with Abby and others have talked about IRMA, which is an additional premium to Medicare, and so if you're not paying attention to your taxable income, that could increase your premiums quite a bit in a scenario like that. So that's a lot of confusion that we see as well when we're doing retirement income planning is how much do I take from what account? Does it really matter what sequence I take from? And it absolutely does both again in this tax year and the tax year 10 years from now. So that's something that we're constantly trying to figure out.

Andy Keeler:

We've kind of harped on this concept that somebody has an after-tax investment account and they're buying and selling stocks, and they're selling those stocks within 12 months, so they're paying income tax on it. What they won't know for a while after they file their tax return is this Medicare surcharge that Mark mentioned, or Irma. We've had many conversations about this on previous podcasts. The amount that you pay in Medicare premiums is income-based, so that decision that you made to sell Amazon stock within a 12 month holding period may cost you. It could be a $700 more per month per person. If you're filing a joint return, that's $1,400 a month. You do the math, I think it's 16,000-ish in a year that that decision is going to cost you, not to mention the 35% let's say tax rate that you paid on the gain. So let's say the stock was up 30%. You give a third of it back in taxes, right? So your 30% is now 20% and you end up paying $16,000 more in Medicare premiums. I hope that your gain was more than $16,000, or you just lost money.

Mark Beaver:

I hope the analogy we used up front is starting to become clearer and clearer of all the gears moving each other around, cause it is constantly um, and and that I said on a board. It probably shouldn't have been on a board, it should have been in some 3d shape like a sphere, cause it's going forwards, backwards, sideways, up and down, um. You know these kinds of conversations, discussions, decisions that we're helping clients with. There's all of these flowing things that you have to figure out and figure out which combination of those makes sense.

Andy Keeler:

I use antique timepiece, so you have an antique watch. You open the thing up, the minute hand and the hour hand, the gears are moving at a certain speed, but the gears that are under that, the guts of that clock, are moving all in different directions at different speeds. So one thing affects another. Hey, mark, thanks as always, and as always, we thank our listeners. I'm Andy Keeler, and this is Financial Opportunities Uncovered brought to you by Keeler and Adler Family Wealth. If you have questions on anything you heard in this episode or have an idea for a future episode, connect with us on LinkedIn.

Mark Beaver:

The opinions expressed in this program are for general information purposes only and are not intended to provide specific advice or recommendations. It is only intended to provide education about finance tax, retirement and related planning topics. To determine which investment strategies are appropriate for you, consult your finance tax, retirement and related planning topics. To determine which investment strategies are appropriate for you, consult your finance, tax or legal advisor. Prior to implementing Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember, investing involves risk and possible loss of principle. Please seek advice from a licensed professional. Keillor and Nadler Family Wealth is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Keeler and Nadler Family Wealth and its representatives are property licensed or exempt from licensure. No advice may be rendered by Keeler and Nadler Family Wealth unless a client service agreement is in place.