The 5 Biggest Mistakes Tech Professionals Make in Financial Planning | Recap

I’m a big fan of the IT community. I began my career at Microsoft and have since been fascinated by the unique and imaginative brains of people working at many kinds of technology organisations. When dealing with tech workers, I get to assist them in negotiating the myriad of perks that are typically only offered at tech businesses, which I like doing. In terms of employee perks, choosing from a menu of a Michelin three-star restaurant is as easy as choosing between RSUs, ESPPs, Non-Qualified or Incentive Stock Options, Mega Backdoor Roth 401(k)s, Deferred Compensation, Legal Services, and Pet Insurance.

I’ve learned a lot about financial planning blunders that IT workers make, both as a former tech employee and now as an adviser who helps other tech professionals to financial freedom and success.

Making the First Mistake: Not Maximizing Rewards

The paradox of choice is something we’ve all heard about. It’s common for consumers to concentrate on the familiar aspects of a broad list of advantages that even some financial experts have a hard time comprehending. Who has time to learn about the tax implications of ESPPs or the specifics of Roth conversions on post-tax 401(k) withdrawals? If you’re employed by a fast-growing technology business, you probably have a limited amount of free time, to begin with.

I can’t stress enough how important it is to take the time to understand how to maximise your advantages today, even if it’s not the most fun use of your nights or weekends. A few years off of your retirement may be gained by investing more assets in your Mega Backdoor Roth 401(k) rather than a tax-deferred trading account. If you retire before you are eligible for Medicare, maximising HSA contributions and investing the account balance may offer a large amount of money to cover high healthcare bills (age 65). You may save hundreds of thousands of dollars in taxes over the course of your life by making targeted Roth Conversions during low-earning years, such as early retirement or during pauses from paid work. Trust me, I’ve got a long one.

A week or even a month without exercise won’t do anything to affect my health in any way. For years, I’ve told myself I’d work out, only to see my physical condition deteriorate as a result of my lack of action. I’ll also miss out on all the wonderful health advantages that regular exercise brings. At some point in the future, I may regret not taking the time to prioritise what is genuinely essential, since I may find that certain health conditions might have been avoided or averted. There are significant long-term consequences to putting anything on hold, regardless of how immediate the effects may seem. Is this going to have an influence on my life in a year if I don’t focus on my money now? My life will suffer if I don’t focus on my own money for 10 years. It’s possible that the influence is larger than you realize.

Concentrated stock positions are the second most common mistake in investing

Any investment that accounts for more than a quarter of your investable assets is considered a concentrated position by me. It’s possible to build up a sizable equity stake in the firm that pays your salary. With no determined strategy to sell shares on a regular basis, if you get stock as compensation, you will keep accumulating stock. In recent years, many families have reaped the benefits of stock compensation and its apparently inexorable rise in value. However, even if RSU and ESPP strategies have worked out well in the recent past, we know that maintaining a concentrated stock position is very dangerous if you want to guarantee that your newly created money is not lost in the stock market.

In my experience, there are two common factors for why a concentrated position is not reduced: Several years in a row, my firm has exceeded the competition. Why would I sell if I believe in my firm and its future growth? There will be a substantial tax bill if I sell my firm shares at this time. Let’s dispel some myths about why you shouldn’t broaden your portfolio:

(1) The return on a single stock holding is often far more variable than the return on a market index. This might either be a boon or a curse for you. About 12% of stocks have lost 100% of their value in the past. [1] The median stock underperformed the market by more than 50%, and around 40% of stocks had negative lifetime returns. 1 There are a few superstars that fuel the market’s positive average returns. The probability of selecting one of these outliers by chance is 1 in 15,000,000. 1 If you’ve been fortunate enough to own one of these outperformers, I advise you to accept with humility the possibility that your quick increase of wealth may have been due to chance.

The “winner’s curse” may befall companies that attain such success and become the dominant player in their industry. There has been a 30 percent drop in performance by sector leaders in the five years after their rise to prominence in a sector. 1 In the long run, it is more probable that you will get a good return on your investment if your portfolio is well-diversified, rather than concentrated.

In order to avoid paying taxes, you must hang on to an investment for the rest of your life. In my opinion, long-term capital gains taxes are a positive thing since they signifies that your assets have grown and you have gained money. Delaying the recognition of capital gains tax might be wiped out by a surprisingly small movement in stock prices. “Don’t let the tax tail wag the dog,” as financial counselors like to say.

Third Mistake #3 – Exhaustion

Vacation time is being used less and less often by Americans. Vacation time in the United States decreased significantly during the 1990s. Americans take an average of 16 vacation days each year, which is almost a full week fewer than they did in 2015. Improvements in technology over the last two decades could have led you to believe that we might be more productive and, as a result, take more time off. Is it any wonder that we are more reluctant to disengage from our jobs and give ourselves permission to unplug as a result of higher productivity?

Your physical and emotional health will improve if you take more time off. People who take vacations are more likely to get promoted than those who do not make use of their paid time off. If they needed any more persuasion. Avoiding burnout not only extends your career but also improves your status and increases your salary. Take preventative measures to avoid this. I’m at a loss for words if there isn’t a convincing reason to take a break. Merriman wants to help you achieve your concept of living fully, whether it means taking time off for an incredible vacation or a wider objective of making work optional.

Poor risk management is the fourth blunder made

The following are some interesting tidbits for your next dinner party with a group of strangers. One hundred 40-year-old males in a room, statistically speaking, will all die before their 50th birthdays if they were all in the same room. Seven more people will die before they turn 60, and a further thirteen will die before they turn 70. As much as a quarter of males who are forty years old will die before they reach their 70th birthday. Do you still want to hear what I have to say?

It isn’t my intention to shock you by bringing up these bleak stats. Due to my own experience, I bring them up because I’ve witnessed firsthand how a lack of financial planning at an already emotionally traumatic moment has the potential to do severe financial damage. Death and disability are topics that no one wants to bring up, yet they are inevitable parts of life that we must face. The individuals we care about need to have their financial security ensured at the very least.

For those who have not engaged with a financial adviser, estate planning and insurance planning are two of the most often disregarded components of a financial strategy. One of the most common areas where we see our customers postpone is in this area. Many things in life seem urgent, but they aren’t really that significant in the grand scheme of things. For the sake of responding to our emails and doing other urgent duties, we often put off critical activities like preparing an estate plan. No matter how urgent the task seems, take a moment to consider the ramifications of failing to finish your will or acquire enough life insurance in the event that your time has run out altogether.

5 – Failing to Hire an Advisor

Yes, I understand it now. When you hire an adviser, you’ll have to pay them. Hiring the wrong counsel might have the opposite effect of what you want it to. There are, however, a lot of benefits to engaging the expertise and resources of a professional. Aside from the fact that I don’t like cutting my own hair, I wouldn’t conceive of defending myself in a legal case. As long as you have a grasp on your assets, are rebalancing your portfolio like a pro, and have done a comprehensive study on your company’s advantages and how to use them, you may go ahead and keep on. I wish this were the case for everyone, but it’s unusual that I meet someone who doesn’t need assistance with at least one significant aspect of their personal financial planning.

A fee-only fiduciary adviser should be your first choice if you decide to engage someone. Asking this question directly is necessary, and if the response is no, I strongly advise that you leave immediately. Also, if you’re wary about making a long-term commitment, inquire about the procedure and cost of ending a partnership with an adviser if you don’t find benefit. Choose an advisory company that won’t make it difficult or costly for you to stop your engagement with them in the middle of the process. Your adviser will want to keep you as a client for years to come if there are no big obstacles to leaving the partnership. Consider reading our advisor profiles if you’re trying to find a match. Do not hesitate to contact me if you have any questions or concerns about your situation.

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