Most of the financial decisions that people say they regret most aren’t due to bad luck. They’re the product of mistakes that could have been avoided — lapses in judgment, gaps in knowledge or failures of discipline that a competent financial adviser should have spotted and corrected before they turned expensive. The value of professional financial advice is typically characterized in terms of ROC (return on capital) or finding opportunities, but a significant component of that value accrues via avoided mistakes. These six are among the most common and also most consequential mistakes a good financial adviser helps clients avoid.
Letting Emotions Drive Investment Decisions
Market volatility elicits strong emotional responses — fear in the case of downturns, excitement during rallies — that reliably cause individual investors to act contrary to their long-term interests. Selling in bad markets crystallizes losses and strips capital from the subsequent recovery. Herding into recent winners involves buying high after most of the opportunity has already been realized. A good advisor in wealth management in Denver or wherever else knows from experience that the emotion brought on by events, including tragedy, can keep you and/or your clients (if a professional advisor) from following the smart long-term strategy laid out when conditions were more settled. The discipline that an advisor brings to you when markets are under stress can be worth more than any individual investment recommendation.
Underestimating the Impact on Wealth Building
The difference between a tax-efficient financial plan and a tax-agnostic one compound significantly over time, but too many people are simply paying far more in taxes than necessary because they never built tax optimization into their financial strategy. A good financial advisor weaves tax strategy throughout all major financial decisions — from the type of account and structure of investments to when income is recognized and how to sequence retirement withdrawals. The cumulative effect of sustained tax efficiency over a multi-decade financial lifespan can be significant, and avoiding this mistake is among the starkest ways that professional advice pays for itself multiple times over.
Neglecting Adequate Insurance Coverage
One of the most overlooked elements of a sound financial plan is insurance, which often isn’t realized until after the fact. Serious underinsurance for life, disability, liability and long-term care means that financial strategies are susceptible to devastating disruption of events that — statistically speaking — aren’t at all unlikely given enough time. An insurance assessment is part of a financial review done by many advisors to understand the complete picture of a family’s overall financial situation, identifying gaps that could ruin years of scrimping and saving with both investment and cash savings in the event of an illness, disability or premature death.
Not Updating the Plan as Life Changes
A financial plan that made sense when you were starting out in life can become dramatically misaligned between stages — yet many people don’t reconsider and revise their blueprint after major life events: marriage, divorce, having children, career pivots, receiving an inheritance or facing health challenges. All of these events have consequences that could carry significant financial implications requiring substantive changes in some combination of savings levels, investment allocations, insurance coverage and estate documents. These reviews become the default; a good financial advisor will initiate them proactively, rather than waiting for the client to be aware that an update is appropriate, helping ensure the plan reflects reality.
Holding High-Interest Debt and Under-Saving for Retirement
One of the biggest financial mistakes people make is prioritizing paying off all their debt — even low-cost mortgage debt — while struggling to put enough money into tax-advantaged retirement accounts. The mathematical fact of the matter is that even relatively small contributions made early to retirement — especially when matched by an employer — often outweigh the interest cost of manageable debt. The financial advisor is mean to help the clients find just the right balance between reducing debt and saving for retirement, so that the opportunity cost of under-saving in the highest-compounding years of a financial life does not go out to a strategy for debt elimination that might make them feel good but may not be mathematically optimal.
Putting Off Estate Planning Until It Seems Urgent
People tend to put off estate planning indefinitely because it seems remote, morbid or, at least in terms of importance like something that happens later in life. The truth is that accidents and serious illness are not age-selective, and without basic estate planning documents — such as a will, a durable power of attorney and an advance health care directive — families lack the guidance they need and the legal protection at the worst time possible. A good financial adviser views estate planning as an equally important piece of overall financial planning, and makes sure their clients have the basic documents in place long before they seem urgently needed.
Also read: GoBlueCC: The Ultimate Credit Card Rewards & Guide
Conclusion
The most important thing that a financial advisor can do is not predicting markets or picking winning stocks — it’s helping clients to construct and adhere to a solid financial plan while keeping them from making the decisions that will sink it. All of the mistakes mentioned above can be avoided simply by obtaining proper guidance from a professional in the field and following through with it. The price you pay for those mistakes, in foregone compounding, unnecessary taxes and unhedged risk, is always many times larger than the price of advice that would have averted them.
