Whilst the best learnings are from one’s own experience, it is never a bad idea to learn from reading about mistakes of others. Christine Benz is an authority in personal finance having researched and written about the subject for years. In this piece, she writes about her mistakes. Here’s two of them we find often amongst our clients as well:
“I Hold Too Much Employer Stock
Over-allocating to company stock is such a rookie mistake. If you already have a lot of your financial wherewithal riding on your employer via your ongoing paycheck, the argument goes, there’s no need to double down on it in your portfolio. And yet here I sit, with an uncomfortably large stake in my own employer’s stock. I’ll spare you the specifics, except to say that it’s a higher percentage of my husband’s and my total portfolio than the 5% or so that you often see bandied about as a reasonable upper threshold. I can take some comfort in knowing I’m not the only one to fall into the same trap; one of the smartest people I know has, too.
I wish I had a good excuse. I understand the tax implications, that I might as well sell each lot of restricted stock units as soon as it vests because there’s no tax benefit to hanging on longer. And it’s not like I think I possess some inside knowledge that the shares are likely to outperform the broad market. I mean, I hope they will, but it’s possible they won’t. Instead, the key culprit here is inertia, plain and simple. It’s easier to let winners ride than it is to pare them back. There’s a little bit of tax dread mixed in, too, as some of the long-held lots have racked up big gains since vesting and at this point would trigger a big tax bill upon sale. I wouldn’t rule out that there’s an element of “mad money” swirling in here, too. In contrast with investments that have resulted from savings, the employer stock feels a little more like a windfall and therefore less serious. (On the plus side, I can more readily give myself permission to spend from these funds than I could with other accounts. Mental accounting is a funny thing.) I’ve been in the process of divesting from company stock for the past several years, but the allocation is still higher than it should be.
I Hold Too Much Cash
Whereas holding a lot of company stock has very likely boosted my portfolio’s performance over time, carrying too much cash has no doubt been the biggest detractor. Cash yields drifted steadily downward for decades, but even when rates are higher, as they are today, inflation is still gobbling up most of the interest. My husband and I haven’t made a deliberate effort to hoard cash; rather, it has tended to stack up in our account following bonuses or other windfalls, or during fallow spending periods like 2020. And while I eschew market-timing, it never feels like an especially great time to move the money into long-term investments. (And yes, I realize that’s a form of market-timing.) Perhaps most important, having cash on hand confers valuable peace of mind. I like knowing that almost anything could happen, whether an income disruption or a surprise expense, and we’d be able to cover it without touching our long-term investments. Cash may be a loser on an inflation-adjusted basis, but I think of it as one of my luxury goods; at this life stage, it’s more valuable to me than a designer purse or expensive car. In contrast with the employer stock problem, this is not an issue that I’m in a big rush to address.”
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
