August 20, 2025 • 23 mins
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Episode 146 – Four Common Investment Mistakes Optometrists Should Avoid
As an optometrist and practice owner, you’ve got enough on your plate running a household, practice, and career - but what about your investments?
In this episode of the Optometry Money Podcast, Evon Mendrin, CFP®, CSLP®, walks through the four most common investment mistakes he sees optometrists make when they come to his firm - mistakes that can quietly cost you over your career.
You’ll learn:
- Why a “junk drawer” portfolio is not a strategy (and how to create a clear investment approach).
- The difference between owning more funds and actually being diversified.
- How complexity for complexity’s sake often adds cost and confusion without adding value.
- Why simplicity can lead to better outcomes, even for high net worth ODs
- Why asset location - putting the right investments in the right accounts - can save you significantly in taxes over time.
These aren’t one-off missteps - they’re patterns Evon sees over and over with ODs nationwide, and by avoiding them, you can create a portfolio that’s simpler, more efficient, and better aligned with your financial goals.
Resources and Links:
- Free PDF Guide: Key Issues to Review in Your Investments
- Schedule a no-pressure introductory call with Evon
Other Episodes Mentioned:
- The Optometry Money Podcast Ep 61: Should You Invest in International Stocks?
- The Optometry Money Podcast Ep 134: The Case for Index Funds – Why Optometrists Should Embrace Passive Investing
- The Optometry Money Podcast Ep 135: Beyond Indexing – An Optometrist’s Guide to Factor-Based Investing
- The Optometry Money Podcast Ep 140: What Most Investors Get Wrong About Dividend Investing
The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:04):
Hey everybody.
Welcome back to the OptometryMoney podcast.
We're helping ODs all over thecountry make better and better
decisions around their money.
Their careers and theirpractices.
I am your host, Evon Mendrin,Certified Financial Planner
practitioner, and owner ofOptometry Wealth Advisors and
independent financial planningfirm just for optometrists
(00:25):
nationwide.
Evon (00:26):
And thank you so much for listening.
Really appreciate your time andyour attention today.
And on today's episode, I wannawalk through the top investing
mistakes I see optometrists makeas they come to my firm, as they
want to get advice andmanagement over all aspects of
their finances.
I wanna talk about the, the mostcommon mistakes I see.
(00:46):
As I look through new family'sinvestments and start to create
a game plan of, of how toimprove it these mistakes or
maybe better said, areas ofimprovement, these opportunities
of improvement come up time andtime again and they can Quietly
cost you over your lifetime,over your career.
And so I wanna talk throughthose common areas of
(01:07):
improvements with families'investments and, um, how we
might approach improving that Solet's go in and dive right in.
Mistake number one is not havinga clear investment approach.
Many families that I see come tome with sort of a, a junk drawer
portfolio.
And this is very often whenthey've been handling the
investments themselves.
(01:27):
And, and what I mean by that isit's just a random collection of
funds kind of thrown togetherwithout any sort of unifying
plan.
and, one account has, you know,one accounts may have a target
date fund, another accounts mayhave a different year's target
date fund.
There might be index funds inanother accounts and maybe some
(01:47):
random, industrial orcommodities fund in another.
There's really no rhyme orreason of why the, the certain
funds are picked.
It's just sort of a randomcollection over the years and.
Without a strategy, you're notreally investing, you're just
sort of collecting products.
And so where I like to start,and, and this is probably the
(02:08):
easiest thing to address and toimprove on, uh, where I like, I
like to start, is to create aclear investment approach.
And if you've listened to someof my past episodes on
investing, which I'll, uh, throwinto the show notes, I, I want
to start with a clear investmentapproach of how we're going to
handle the investments.
What you hear in earlierepisodes is that, I believe
(02:30):
based on the evidence andresearch we have available to
us, that a passive style ofinvesting makes sense, meaning
investing not based on, amanager's intuition or my own
intuition and trying to selectthe individual investments I
feel will do better, or tryingto time swings in markets.
I, I think the better approachis to invest broadly.
(02:51):
In a broadly diversified waybased on a clear, transparent
set of rules and trying tominimize costs and taxes where,
where we can, and one example ofthis is index fund investing.
I have an episode all about, uh,the merits and research behind
why index investing makes sense.
but I also consider,factor-based investing to be a
(03:12):
part of that as well, havingrules that tilt towards certain
characteristics like smallercompanies and.
cheaper or value companies andmore profitable companies
relative to the index as awhole.
And so I wanna start with aclear approach.
What is our, what is ourapproach to investing as a
whole?
And then we go through theprocess of figuring out, okay,
(03:32):
based on.
Uh, where your family's at inyour career based on the goals
that you're investing towardyour time horizon before you
need to use the, the funds, whatis the right mix of stocks
versus other things like bondsthat makes sense for you.
And then knowing our approach,knowing that mix that my firm is
targeting and, and maybe you'retargeting as well, then we can
(03:54):
start to say, okay, which fundsdo we use?
Which investments do we use tofill those categories?
Stocks versus bonds, US versusinternational stocks, large
versus small and differentcharacteristics.
So you start with an approachthat, that makes sense, an
overarching approach, uh, thatis evidence-based.
(04:15):
You, you narrow down into theright mix of different
categories that make sense foryou, and then you then that
leads to using the rightproducts, the right mutual funds
or ETFs, and all of youraccounts should be.
Managed together.
I look at all of a client'shousehold accounts that are
going towards the sameinvestment goal, retirement, for
(04:37):
example, or financialindependence, a s one big
investment household investmentpie, and each account is a
different slice of that pie, butI want to invest all of the
different accounts together.
In, in a, a unified plan andrather than having sort of a
random mix of investments andfunds and individual stocks and
all these different accounts,and so not having a clear
(05:00):
investment approach or a clearreason why certain funds are
selected over the years.
is, is area of improvementnumber one, mistake number one,
and maybe one of the biggestsymptoms of not having a clear
plan is this next mistake, whichis thinking you are diversified
broadly when you're really not.
And so mistake number two is a,a lack of broad enough
(05:23):
diversification.
And you know, what isdiversification?
It's spreading out yourinvestment dollars across as
many unique sources of risk andreturn as possible so that if
one risk shows up in yourinvestments, you know, for
example, if one stock, if onecorporation goes belly up, well
that doesn't impact all of yourinvested dollars because you are
(05:44):
broadly invested.
And it's, it's really a measure.
It's really a, a way to managerisk in your investments.
And, and so rather than investin only one company, one
corporate stock, you get investin All of the companies in that
industry, and instead of all ofyour wealth being tied to the,
to the performance or lackthereof of one industry, you can
(06:05):
invest in all industries.
and so you can start to go andbuild out and spread from there,
uh, including US andinternational.
Sometimes this shows up as a, aclient, as, as a family, as an
optometrist, holding too many ofindividual companies and not
really having broaddiversification.
other times I see this show upwhere the family will own a lot
(06:27):
of like industry or trendspecific index funds kind of
thinking, Hey, it's an indexfund.
Like, shouldn't I be broadlydiversified, like healthcare,
for example, or industrial ordefense index fund or something
like that.
But they're really justconcentrated bets on that one
industry.
so that's, that's another waythat that shows up is really
(06:48):
concentrated bets on certain,industry, uh, specific index
funds.
but more often it's really thatthey own a bunch of funds,
mutual funds or ETFs that reallyown the same thing.
So, for example, and this is themost common example, is you
might own a bunch of mutualfunds, you know, 5, 6, 7, 8
mutual funds.
(07:09):
But they really all own large UScompanies, large US stocks.
That's probably the most commonthing I see is they own a few
different funds.
You know, they could all beindex funds too, but really when
you look at what's inside ofthem, they're all just US large
corporations.
and as I've talked about inother episodes, for me, the
(07:29):
starting point, truediversification and, and just
common sense starts withinvesting globally at the global
market.
And that's where we start ourapproach and our due diligence.
And if we feel like we need toadjust away from that, if we
have evidence that tells us todo that, we'll adjust from the
global market.
And so that's our starting pointand I think that should be the
(07:51):
starting point for your duediligence as well.
And and so when I see a bunch offunds that all own the same
large US corporations, I wouldsay that is under diversified.
And, and, and there's a, acommon misconception that if you
own more funds, that should meanyou're more broadly invested.
And it, it's not necessarilyabout the amount of funds you
(08:12):
own, it's really more aboutwhat's inside of those funds,
what's underneath.
And as you add it all together,is there a whole bunch of
overlap or is it really actuallydiversified?
And so a lack ofdiversification, having a bunch
of funds that really invest inthe same stuff is mistake number
two.
Mistake number three is, issomething I see more often where
(08:33):
the, the family's coming fromanother, you know, let's just
say X, y, z, large financialinstitution, but, the second one
is complexity for complexitysake.
Having too much, far too muchcomplexity in the accounts of,
of the optometrist.
And this show shows up in tworeally common ways that I see.
(08:53):
Number one is having a huge listof funds unnecessarily.
And very often when I look at anaccount statement and there are
10 to 20 funds.
Mutual funds, ETFs in thissingle account.
And if that same family hasmultiple accounts with this
institution, there could be aRoth IRA, a Traditional IRA, a
(09:15):
taxable brokerage account.
They all have roughly the sameboilerplate, templated list of
15 to 20 accounts, or 15 to 20funds in each of these separate
accounts.
So when you add'em all together,we're talking about.
30 and more funds to deal withas a whole.
And there's often a ton ofoverlap in between, very often
(09:38):
with really highly active mutualfunds that, that are very
expensive and, and often taxinefficient.
And it, it's just unnecessarycomplexity because very often
you can replicate the, theinvestment mix underneath all of
them.
Meaning if you looked at what,what was actually under the hood
of all these funds added all uptogether, you know, let's just
(10:01):
say it's 80% stocks, 20% bonds,and X amount to US versus
international.
Like when you actually look atwhat's underneath, you can
replicate that same mix.
Very often with far fewer fundsand far fewer complexities, and
very often with, with lowercost, you know, you, you can
often replicate with three tofive funds, for example, or in
(10:23):
some cases if it's all stockswith one fund.
A nd so very often there's fartoo many funds in these
accounts, even with really smalldollar amounts.
and which seems to me like justcomplexity for the sake of
complexity or complexity is jobsecurity.
And, and very often it'sunnecessary.
You can simplify the mix offunds, still get the same,
(10:46):
underlying mix of investmentcategories and, and very often
at a lower cost.
It makes it difficult,especially where taxable
investments are involved.
it makes it difficult to unwindbecause you have capital gains
to consider across a whole bunchof different investments.
it's very easy with retirementaccounts'cause there are no tax
consequences to selling andreinvesting, but it's, it's
(11:07):
those taxable accounts where itstarts to get, it starts to get
annoyingly complicated tounwind.
And so that's number one.
That's area number one where Isee complexity come in, uh, with
really long lists of often boilplate.
funds selected and very oftenexpensive, actively managed
funds at that.
the second way I see this comingis from the products themselves,
(11:30):
meaning there are overlycomplicated products being used
with the clients.
So that could be, interval fundsor, uh, buffered ETFs, for
example.
it could be things like indexeduniversal life policies or
indexed annuities.
Uh, it could also be things likeprivate investments like,
privately traded REITs or realestate syndicates.
It could be, uh, differentversions of alternatives or or
(11:52):
private equity.
And when we ask the question,why, why are these investments
there?
What is the purpose of theinvestments?
What goal or issue are theseoften high fee or high cost
investments solving that youcouldn't have solved with a
simpler investment option.
(12:14):
And very often when you, whenyou start to peel back, like
what is the real purpose or whatissue or or problem are they
solving?
There's not really a clearanswer.
And, and very often they're justsort of pitched to the investor
because that's what investorswith that size of investments,
uh, are drawn toward.
And what's frustrating is thatvery often they are sold or
(12:36):
pitched with this sort of pitchthat you can get market returns
with lower risk, sometimeshigher returns than something
else with lower risk.
and, and very often when you,when you put that to scrutiny,
very often those claims don'tstand up to scrutiny and even
more, the complexity hides a lotof the fees sometimes.
It..and makes it difficult toevaluate them, and it makes it
(12:58):
difficult for you as an investorto have good expectations, of
what to expect.
And so, the products themselvesor the, the things that are
invested in, are very often,overly complex.
And I've seen across a range ofnet worths from very humble
beginnings of the net worth sidein early in the optometrists'
career to later in theoptometrists career with,
(13:20):
multiple million dollars of networth.
You can invest wisely andsuccessfully, without
unnecessary complexity.
You don't have to layer oncomplexity as your net worth
gets larger.
You don't have to be drawn tothings that, that are overly
complex.
You still can be successful asan investor, and invest simply.
(13:43):
And so whenever you are drawn tosomething or pitch something,
that is, that is offeringanother layer of complexity that
is offering market returns withlower risk or something like
that.
I would look at those thingswith a healthy amount of
skepticism and I would askyourself, you need to be very
clear on what issue, whatproblem, or what goal is this
(14:04):
particular thing solving that Iwouldn't have solved without it.
and a lot of times when youstart to peel back the layers
and, and apply some scrutiny,what you start to see is those
claims often don't stand up oryou start to see that you just
don't need the complexity inyour life.
And so, mistake number three isa, is complexity for the, for
the sake of complexity,overcomplicating the investment
(14:27):
mixes and, and the investmentoptions and products.
and then number four, the wronginvestments in the wrong
accounts.
What do I mean by this?
Well, if you look at all of yourdifferent investment accounts,
you have, different accountswith different tax
characteristics.
You might have pre-taxretirement accounts in 401 Ks
and in traditional IRAs, uh, youmight have Roth retirement
accounts in the 401k and RothIRAs where the, the dollars are
(14:50):
after tax, but assuming wefollow the rules in retirement,
we can draw from it tax free.
Uh, we might also have taxablebrokerage accounts, where the
investment income that that'skicked off from those accounts
ends up on your tax return eachand every year.
And when we.
Sell funds at a higher amountthan we, than we bought'em for.
we have to consider capitalgains with potentially different
tax rates.
(15:11):
Uh, or we might have HSAs whichhave sort of a triple tax
advantage where the dollars youput into it federally speaking
at least, are, are deductible.
if you invest it, thatinvestment growth doesn't end up
on your federal tax return.
And when you inve, when youwithdraw from it for qualifying
healthcare expenses at any pointthroughout your life, it comes
out tax free as well.
(15:31):
And so you have all thesedifferent accounts that hold
investments.
All have their different taxcharacteristics and what we'd
like to see are that we areputting the right investment
categories in the right type ofaccounts because, and, and we're
matching them up from a tax andgrowth perspective.
For example, we know that.
(15:52):
Corporate bonds, treasuries, forexample.
Those type of bonds kick offinterest that's taxed at
ordinary tax rates, just likeyour wages, just like your
practice profit.
So 12%, 22%, 24%, 35%, so on andso forth.
So that's really Tax inefficientincome, we, we'd like to see
that not end up on your taxreturn.
(16:12):
So with bonds, for example, wemight look at bonds in your
pre-tax retirement accounts,like the 401(k)s, traditional
IRAs.
real estate investment trusts,REITs funds that invest in
REITs.
we'd also like to see thatincome stay off of your tax
return if possible.
So we're looking at, taxadvantaged accounts like
retirement accounts as well.
Roth IRAs, we'd like to see RothIRAs hold the highest pot, the
(16:35):
highest growth potential assets.
We'd like to see that tax-freegrowth be as high as possible
with our investment options.
With stocks on the, on the otherhand, stocks very often kick off
qualified dividends, which aretaxed at long-term capital gains
rates, uh, which could be 0%,15%, 20% depending on your
income.
And when you sell them, assumingyou're selling these, these
(16:58):
stock funds, or the stocksthemselves, assuming you've
owned them for longer than ayear, that capital gains are
taxed at those capital gainsrates.
So those tend to be more taxefficient.
And those are investments we'remore comfortable holding in
taxable investment accounts, Andthat isn't always the case with
(17:19):
stocks.
You're gonna see somedifferences in the United States
versus international, withinternational stocks.
Uh, foreign countries maywithhold taxes before they pay
the dividends out, and you couldpotentially recoup that in a
foreign tax credit if that'sheld in a taxable brokerage
account.
So there's some differences inUnited States stocks versus
international stocks.
and there are also differentdifferences too.
(17:41):
If you are taking a, like reallyhigh yield income yield
approach, like really high yielddividend funds or something like
that, those are not taxefficient.
You are forcing more dividendincome onto your, tax return by
holding those in taxablebrokerage accounts.
And so, you know, there are someconsiderations depending on the
way that you are investing instocks.
But generally speaking, we'dprefer to see more tax
(18:04):
efficient, broad-based indexfund or factor-based stock funds
inside of taxable brokerageaccounts.
And very often ETFs are more,tax efficient just due to the
way that they're structured thanmutual funds.
they tend to kick off lesscapital gains, at the end of the
year.
And so, we'll try to target ETFsversus mutual funds where
(18:25):
possible.
So those are some of theconsiderations.
And again, the way we'd approachthat is we look at all the
client accounts, the familyaccounts going towards the same
goal as one big family householdinvestment mix.
Each account is just a slice ofthat, and knowing the target
percentages of differentcategories like stocks versus
bonds in US versus internationaland all of that.
(18:47):
Uh, we can look at all theseaccounts and say, well, which
categories do I wanna place ineach account?
And we'd buy those funds in thatparticular account.
And we call that asset location,right?
Just putting the rightinvestments, the right assets in
the right category of accounts,and.
That only works if you seeeverything together in harmony.
(19:08):
it doesn't work if you look atall these, each separate account
in its own silo.
And very often what we see witha new family that we're working
with is that we'll look at theiraccounts and we'll look at the
statements and each account ishandled individually on its own
in a silo.
And we'll very often see, withtaxable brokerage accounts,
inefficient investments, we'llsee taxable bonds in those
(19:29):
accounts.
We'll see REITs in thoseaccounts.
Uh, we'll see high incomedividend funds in those
accounts, and we will also seevery active, very tax
inefficient, mutual funds inthose accounts.
And so, very often thoseaccounts are tax inefficient,
kicking off more income ontoyour tax return each year than
is necessary.
And then even in terms ofretirement accounts, we'll often
(19:50):
see in Roth IRAs, for example,bond funds in those Roth IRAs
where we would prefer not to seethose.
By looking at all of youraccounts together, you can take
a more efficient approach withwhere you place each category of
investments and Even slight taxcost, if, if you look at those
tax costs, even slight tax costsover several decades can have a,
(20:11):
can have a pretty substantialimpact on, on wealth over time.
And so these are the four mostcommon sort of areas of
improvements that I see withclient investments.
Even though for the most partclients aren't coming to us with
concerns about the investments,it's very often things related
to a cash flow in the householdor in the practice.
It's related to student loanplanning.
It's related to more proactivetax planning.
(20:34):
It's, it's wanting to see moreprogress towards goals like
financial independence.
So very often we're not reallygetting to the investments
until, you know, maybe three tofour conversations in, but
there's very often opportunitiesto improve the investments.
And so these are some things youcan think about as well.
And if we were to think aboutnext steps from here, what I
would look at is.
I would, I would think about foryourself or if you're working
(20:55):
with an advisor, what is ouroverall investment approach?
What is our philosophy here?
what is our targeted mix ofstocks versus bonds?
And then within things likestocks, US versus international,
uh, large versus small, growthversus value in different things
like that.
What are, what are our targets?
And then once you have thosethings, you can start to say,
(21:16):
okay.
Which funds do I want to use inorder to fill those categories,
those targets, and whichaccounts should I hold those in?
And be careful about thinkingthat more funds automatically
equals more diversification.
and be careful about thinkingthat more complexity
automatically leads to betteroutcomes.
Very often, simplicity, lowercost can lead to better outcomes
(21:38):
versus the alternative.
Talk with your financial advisorabout the investment approach
that makes sense for you.
Obviously, I cannot giveinvestment advice to, uh,
hundreds and hundreds of peopleI've never met.
but hopefully that's helpful foryou.
And for the listeners, I puttogether a free PDF resource for
you about what issues you shouldconsider when you're reviewing
your investments.
And you can find a link to thatin the show notes.
(22:00):
Along with this episode, thatshould be a helpful tool for you
to take a look at what's underthe hood in your investment
accounts and see if you need tobe making improvements,
adjustments, or, or anythinglike that.
And if you're feelingoverwhelmed, if you're not sure
where these opportunities forimprovement are or what to make
of all the investments in yourdifferent accounts, I'll throw a
link in the show notes and youcan pick out a time to schedule
(22:20):
a short, no pressureintroductory call.
We can talk about what's on yourmind financially, and we can
share how I help optometristsand practice owners navigate
those same decisions all overthe country.
And with that, appreciate yourtime.
We'll catch you on the nextepisode.
In the meantime, take care.
Hey everybody.
Welcome back to the OptometryMoney podcast.
We're helping ODs all over thecountry make better and better
decisions around their money.
Their careers and theirpractices.
I am your host, Evon Mendrin,Certified Financial Planner
practitioner, and owner ofOptometry Wealth Advisors and
independent financial planningfirm just for optometrists
(00:25):
nationwide.
Evon (00:26):
And thank you so much for listening.
Really appreciate your time andyour attention today.
And on today's episode, I wannawalk through the top investing
mistakes I see optometrists makeas they come to my firm, as they
want to get advice andmanagement over all aspects of
their finances.
I wanna talk about the, the mostcommon mistakes I see.
(00:46):
As I look through new family'sinvestments and start to create
a game plan of, of how toimprove it these mistakes or
maybe better said, areas ofimprovement, these opportunities
of improvement come up time andtime again and they can Quietly
cost you over your lifetime,over your career.
And so I wanna talk throughthose common areas of
(01:07):
improvements with families'investments and, um, how we
might approach improving that Solet's go in and dive right in.
Mistake number one is not havinga clear investment approach.
Many families that I see come tome with sort of a, a junk drawer
portfolio.
And this is very often whenthey've been handling the
investments themselves.
(01:27):
And, and what I mean by that isit's just a random collection of
funds kind of thrown togetherwithout any sort of unifying
plan.
and, one account has, you know,one accounts may have a target
date fund, another accounts mayhave a different year's target
date fund.
There might be index funds inanother accounts and maybe some
(01:47):
random, industrial orcommodities fund in another.
There's really no rhyme orreason of why the, the certain
funds are picked.
It's just sort of a randomcollection over the years and.
Without a strategy, you're notreally investing, you're just
sort of collecting products.
And so where I like to start,and, and this is probably the
(02:08):
easiest thing to address and toimprove on, uh, where I like, I
like to start, is to create aclear investment approach.
And if you've listened to someof my past episodes on
investing, which I'll, uh, throwinto the show notes, I, I want
to start with a clear investmentapproach of how we're going to
handle the investments.
What you hear in earlierepisodes is that, I believe
(02:30):
based on the evidence andresearch we have available to
us, that a passive style ofinvesting makes sense, meaning
investing not based on, amanager's intuition or my own
intuition and trying to selectthe individual investments I
feel will do better, or tryingto time swings in markets.
I, I think the better approachis to invest broadly.
(02:51):
In a broadly diversified waybased on a clear, transparent
set of rules and trying tominimize costs and taxes where,
where we can, and one example ofthis is index fund investing.
I have an episode all about, uh,the merits and research behind
why index investing makes sense.
but I also consider,factor-based investing to be a
(03:12):
part of that as well, havingrules that tilt towards certain
characteristics like smallercompanies and.
cheaper or value companies andmore profitable companies
relative to the index as awhole.
And so I wanna start with aclear approach.
What is our, what is ourapproach to investing as a
whole?
And then we go through theprocess of figuring out, okay,
(03:32):
based on.
Uh, where your family's at inyour career based on the goals
that you're investing towardyour time horizon before you
need to use the, the funds, whatis the right mix of stocks
versus other things like bondsthat makes sense for you.
And then knowing our approach,knowing that mix that my firm is
targeting and, and maybe you'retargeting as well, then we can
(03:54):
start to say, okay, which fundsdo we use?
Which investments do we use tofill those categories?
Stocks versus bonds, US versusinternational stocks, large
versus small and differentcharacteristics.
So you start with an approachthat, that makes sense, an
overarching approach, uh, thatis evidence-based.
(04:15):
You, you narrow down into theright mix of different
categories that make sense foryou, and then you then that
leads to using the rightproducts, the right mutual funds
or ETFs, and all of youraccounts should be.
Managed together.
I look at all of a client'shousehold accounts that are
going towards the sameinvestment goal, retirement, for
(04:37):
example, or financialindependence, a s one big
investment household investmentpie, and each account is a
different slice of that pie, butI want to invest all of the
different accounts together.
In, in a, a unified plan andrather than having sort of a
random mix of investments andfunds and individual stocks and
all these different accounts,and so not having a clear
(05:00):
investment approach or a clearreason why certain funds are
selected over the years.
is, is area of improvementnumber one, mistake number one,
and maybe one of the biggestsymptoms of not having a clear
plan is this next mistake, whichis thinking you are diversified
broadly when you're really not.
And so mistake number two is a,a lack of broad enough
(05:23):
diversification.
And you know, what isdiversification?
It's spreading out yourinvestment dollars across as
many unique sources of risk andreturn as possible so that if
one risk shows up in yourinvestments, you know, for
example, if one stock, if onecorporation goes belly up, well
that doesn't impact all of yourinvested dollars because you are
(05:44):
broadly invested.
And it's, it's really a measure.
It's really a, a way to managerisk in your investments.
And, and so rather than investin only one company, one
corporate stock, you get investin All of the companies in that
industry, and instead of all ofyour wealth being tied to the,
to the performance or lackthereof of one industry, you can
(06:05):
invest in all industries.
and so you can start to go andbuild out and spread from there,
uh, including US andinternational.
Sometimes this shows up as a, aclient, as, as a family, as an
optometrist, holding too many ofindividual companies and not
really having broaddiversification.
other times I see this show upwhere the family will own a lot
(06:27):
of like industry or trendspecific index funds kind of
thinking, Hey, it's an indexfund.
Like, shouldn't I be broadlydiversified, like healthcare,
for example, or industrial ordefense index fund or something
like that.
But they're really justconcentrated bets on that one
industry.
so that's, that's another waythat that shows up is really
(06:48):
concentrated bets on certain,industry, uh, specific index
funds.
but more often it's really thatthey own a bunch of funds,
mutual funds or ETFs that reallyown the same thing.
So, for example, and this is themost common example, is you
might own a bunch of mutualfunds, you know, 5, 6, 7, 8
mutual funds.
(07:09):
But they really all own large UScompanies, large US stocks.
That's probably the most commonthing I see is they own a few
different funds.
You know, they could all beindex funds too, but really when
you look at what's inside ofthem, they're all just US large
corporations.
and as I've talked about inother episodes, for me, the
(07:29):
starting point, truediversification and, and just
common sense starts withinvesting globally at the global
market.
And that's where we start ourapproach and our due diligence.
And if we feel like we need toadjust away from that, if we
have evidence that tells us todo that, we'll adjust from the
global market.
And so that's our starting pointand I think that should be the
(07:51):
starting point for your duediligence as well.
And and so when I see a bunch offunds that all own the same
large US corporations, I wouldsay that is under diversified.
And, and, and there's a, acommon misconception that if you
own more funds, that should meanyou're more broadly invested.
And it, it's not necessarilyabout the amount of funds you
(08:12):
own, it's really more aboutwhat's inside of those funds,
what's underneath.
And as you add it all together,is there a whole bunch of
overlap or is it really actuallydiversified?
And so a lack ofdiversification, having a bunch
of funds that really invest inthe same stuff is mistake number
two.
Mistake number three is, issomething I see more often where
(08:33):
the, the family's coming fromanother, you know, let's just
say X, y, z, large financialinstitution, but, the second one
is complexity for complexitysake.
Having too much, far too muchcomplexity in the accounts of,
of the optometrist.
And this show shows up in tworeally common ways that I see.
(08:53):
Number one is having a huge listof funds unnecessarily.
And very often when I look at anaccount statement and there are
10 to 20 funds.
Mutual funds, ETFs in thissingle account.
And if that same family hasmultiple accounts with this
institution, there could be aRoth IRA, a Traditional IRA, a
(09:15):
taxable brokerage account.
They all have roughly the sameboilerplate, templated list of
15 to 20 accounts, or 15 to 20funds in each of these separate
accounts.
So when you add'em all together,we're talking about.
30 and more funds to deal withas a whole.
And there's often a ton ofoverlap in between, very often
(09:38):
with really highly active mutualfunds that, that are very
expensive and, and often taxinefficient.
And it, it's just unnecessarycomplexity because very often
you can replicate the, theinvestment mix underneath all of
them.
Meaning if you looked at what,what was actually under the hood
of all these funds added all uptogether, you know, let's just
(10:01):
say it's 80% stocks, 20% bonds,and X amount to US versus
international.
Like when you actually look atwhat's underneath, you can
replicate that same mix.
Very often with far fewer fundsand far fewer complexities, and
very often with, with lowercost, you know, you, you can
often replicate with three tofive funds, for example, or in
(10:23):
some cases if it's all stockswith one fund.
A nd so very often there's fartoo many funds in these
accounts, even with really smalldollar amounts.
and which seems to me like justcomplexity for the sake of
complexity or complexity is jobsecurity.
And, and very often it'sunnecessary.
You can simplify the mix offunds, still get the same,
(10:46):
underlying mix of investmentcategories and, and very often
at a lower cost.
It makes it difficult,especially where taxable
investments are involved.
it makes it difficult to unwindbecause you have capital gains
to consider across a whole bunchof different investments.
it's very easy with retirementaccounts'cause there are no tax
consequences to selling andreinvesting, but it's, it's
(11:07):
those taxable accounts where itstarts to get, it starts to get
annoyingly complicated tounwind.
And so that's number one.
That's area number one where Isee complexity come in, uh, with
really long lists of often boilplate.
funds selected and very oftenexpensive, actively managed
funds at that.
the second way I see this comingis from the products themselves,
(11:30):
meaning there are overlycomplicated products being used
with the clients.
So that could be, interval fundsor, uh, buffered ETFs, for
example.
it could be things like indexeduniversal life policies or
indexed annuities.
Uh, it could also be things likeprivate investments like,
privately traded REITs or realestate syndicates.
It could be, uh, differentversions of alternatives or or
(11:52):
private equity.
And when we ask the question,why, why are these investments
there?
What is the purpose of theinvestments?
What goal or issue are theseoften high fee or high cost
investments solving that youcouldn't have solved with a
simpler investment option.
(12:14):
And very often when you, whenyou start to peel back, like
what is the real purpose or whatissue or or problem are they
solving?
There's not really a clearanswer.
And, and very often they're justsort of pitched to the investor
because that's what investorswith that size of investments,
uh, are drawn toward.
And what's frustrating is thatvery often they are sold or
(12:36):
pitched with this sort of pitchthat you can get market returns
with lower risk, sometimeshigher returns than something
else with lower risk.
and, and very often when you,when you put that to scrutiny,
very often those claims don'tstand up to scrutiny and even
more, the complexity hides a lotof the fees sometimes.
It..and makes it difficult toevaluate them, and it makes it
(12:58):
difficult for you as an investorto have good expectations, of
what to expect.
And so, the products themselvesor the, the things that are
invested in, are very often,overly complex.
And I've seen across a range ofnet worths from very humble
beginnings of the net worth sidein early in the optometrists'
career to later in theoptometrists career with,
(13:20):
multiple million dollars of networth.
You can invest wisely andsuccessfully, without
unnecessary complexity.
You don't have to layer oncomplexity as your net worth
gets larger.
You don't have to be drawn tothings that, that are overly
complex.
You still can be successful asan investor, and invest simply.
(13:43):
And so whenever you are drawn tosomething or pitch something,
that is, that is offeringanother layer of complexity that
is offering market returns withlower risk or something like
that.
I would look at those thingswith a healthy amount of
skepticism and I would askyourself, you need to be very
clear on what issue, whatproblem, or what goal is this
(14:04):
particular thing solving that Iwouldn't have solved without it.
and a lot of times when youstart to peel back the layers
and, and apply some scrutiny,what you start to see is those
claims often don't stand up oryou start to see that you just
don't need the complexity inyour life.
And so, mistake number three isa, is complexity for the, for
the sake of complexity,overcomplicating the investment
(14:27):
mixes and, and the investmentoptions and products.
and then number four, the wronginvestments in the wrong
accounts.
What do I mean by this?
Well, if you look at all of yourdifferent investment accounts,
you have, different accountswith different tax
characteristics.
You might have pre-taxretirement accounts in 401 Ks
and in traditional IRAs, uh, youmight have Roth retirement
accounts in the 401k and RothIRAs where the, the dollars are
(14:50):
after tax, but assuming wefollow the rules in retirement,
we can draw from it tax free.
Uh, we might also have taxablebrokerage accounts, where the
investment income that that'skicked off from those accounts
ends up on your tax return eachand every year.
And when we.
Sell funds at a higher amountthan we, than we bought'em for.
we have to consider capitalgains with potentially different
tax rates.
(15:11):
Uh, or we might have HSAs whichhave sort of a triple tax
advantage where the dollars youput into it federally speaking
at least, are, are deductible.
if you invest it, thatinvestment growth doesn't end up
on your federal tax return.
And when you inve, when youwithdraw from it for qualifying
healthcare expenses at any pointthroughout your life, it comes
out tax free as well.
(15:31):
And so you have all thesedifferent accounts that hold
investments.
All have their different taxcharacteristics and what we'd
like to see are that we areputting the right investment
categories in the right type ofaccounts because, and, and we're
matching them up from a tax andgrowth perspective.
For example, we know that.
(15:52):
Corporate bonds, treasuries, forexample.
Those type of bonds kick offinterest that's taxed at
ordinary tax rates, just likeyour wages, just like your
practice profit.
So 12%, 22%, 24%, 35%, so on andso forth.
So that's really Tax inefficientincome, we, we'd like to see
that not end up on your taxreturn.
(16:12):
So with bonds, for example, wemight look at bonds in your
pre-tax retirement accounts,like the 401(k)s, traditional
IRAs.
real estate investment trusts,REITs funds that invest in
REITs.
we'd also like to see thatincome stay off of your tax
return if possible.
So we're looking at, taxadvantaged accounts like
retirement accounts as well.
Roth IRAs, we'd like to see RothIRAs hold the highest pot, the
(16:35):
highest growth potential assets.
We'd like to see that tax-freegrowth be as high as possible
with our investment options.
With stocks on the, on the otherhand, stocks very often kick off
qualified dividends, which aretaxed at long-term capital gains
rates, uh, which could be 0%,15%, 20% depending on your
income.
And when you sell them, assumingyou're selling these, these
(16:58):
stock funds, or the stocksthemselves, assuming you've
owned them for longer than ayear, that capital gains are
taxed at those capital gainsrates.
So those tend to be more taxefficient.
And those are investments we'remore comfortable holding in
taxable investment accounts, Andthat isn't always the case with
(17:19):
stocks.
You're gonna see somedifferences in the United States
versus international, withinternational stocks.
Uh, foreign countries maywithhold taxes before they pay
the dividends out, and you couldpotentially recoup that in a
foreign tax credit if that'sheld in a taxable brokerage
account.
So there's some differences inUnited States stocks versus
international stocks.
and there are also differentdifferences too.
(17:41):
If you are taking a, like reallyhigh yield income yield
approach, like really high yielddividend funds or something like
that, those are not taxefficient.
You are forcing more dividendincome onto your, tax return by
holding those in taxablebrokerage accounts.
And so, you know, there are someconsiderations depending on the
way that you are investing instocks.
But generally speaking, we'dprefer to see more tax
(18:04):
efficient, broad-based indexfund or factor-based stock funds
inside of taxable brokerageaccounts.
And very often ETFs are more,tax efficient just due to the
way that they're structured thanmutual funds.
they tend to kick off lesscapital gains, at the end of the
year.
And so, we'll try to target ETFsversus mutual funds where
(18:25):
possible.
So those are some of theconsiderations.
And again, the way we'd approachthat is we look at all the
client accounts, the familyaccounts going towards the same
goal as one big family householdinvestment mix.
Each account is just a slice ofthat, and knowing the target
percentages of differentcategories like stocks versus
bonds in US versus internationaland all of that.
(18:47):
Uh, we can look at all theseaccounts and say, well, which
categories do I wanna place ineach account?
And we'd buy those funds in thatparticular account.
And we call that asset location,right?
Just putting the rightinvestments, the right assets in
the right category of accounts,and.
That only works if you seeeverything together in harmony.
(19:08):
it doesn't work if you look atall these, each separate account
in its own silo.
And very often what we see witha new family that we're working
with is that we'll look at theiraccounts and we'll look at the
statements and each account ishandled individually on its own
in a silo.
And we'll very often see, withtaxable brokerage accounts,
inefficient investments, we'llsee taxable bonds in those
(19:29):
accounts.
We'll see REITs in thoseaccounts.
Uh, we'll see high incomedividend funds in those
accounts, and we will also seevery active, very tax
inefficient, mutual funds inthose accounts.
And so, very often thoseaccounts are tax inefficient,
kicking off more income ontoyour tax return each year than
is necessary.
And then even in terms ofretirement accounts, we'll often
(19:50):
see in Roth IRAs, for example,bond funds in those Roth IRAs
where we would prefer not to seethose.
By looking at all of youraccounts together, you can take
a more efficient approach withwhere you place each category of
investments and Even slight taxcost, if, if you look at those
tax costs, even slight tax costsover several decades can have a,
(20:11):
can have a pretty substantialimpact on, on wealth over time.
And so these are the four mostcommon sort of areas of
improvements that I see withclient investments.
Even though for the most partclients aren't coming to us with
concerns about the investments,it's very often things related
to a cash flow in the householdor in the practice.
It's related to student loanplanning.
It's related to more proactivetax planning.
(20:34):
It's, it's wanting to see moreprogress towards goals like
financial independence.
So very often we're not reallygetting to the investments
until, you know, maybe three tofour conversations in, but
there's very often opportunitiesto improve the investments.
And so these are some things youcan think about as well.
And if we were to think aboutnext steps from here, what I
would look at is.
I would, I would think about foryourself or if you're working
(20:55):
with an advisor, what is ouroverall investment approach?
What is our philosophy here?
what is our targeted mix ofstocks versus bonds?
And then within things likestocks, US versus international,
uh, large versus small, growthversus value in different things
like that.
What are, what are our targets?
And then once you have thosethings, you can start to say,
(21:16):
okay.
Which funds do I want to use inorder to fill those categories,
those targets, and whichaccounts should I hold those in?
And be careful about thinkingthat more funds automatically
equals more diversification.
and be careful about thinkingthat more complexity
automatically leads to betteroutcomes.
Very often, simplicity, lowercost can lead to better outcomes
(21:38):
versus the alternative.
Talk with your financial advisorabout the investment approach
that makes sense for you.
Obviously, I cannot giveinvestment advice to, uh,
hundreds and hundreds of peopleI've never met.
but hopefully that's helpful foryou.
And for the listeners, I puttogether a free PDF resource for
you about what issues you shouldconsider when you're reviewing
your investments.
And you can find a link to thatin the show notes.
(22:00):
Along with this episode, thatshould be a helpful tool for you
to take a look at what's underthe hood in your investment
accounts and see if you need tobe making improvements,
adjustments, or, or anythinglike that.
And if you're feelingoverwhelmed, if you're not sure
where these opportunities forimprovement are or what to make
of all the investments in yourdifferent accounts, I'll throw a
link in the show notes and youcan pick out a time to schedule
(22:20):
a short, no pressureintroductory call.
We can talk about what's on yourmind financially, and we can
share how I help optometristsand practice owners navigate
those same decisions all overthe country.
And with that, appreciate yourtime.
We'll catch you on the nextepisode.
In the meantime, take care.
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