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Practical Planning Tip: The Four Sons of Investing - The Wise Son

April 16, 2024

In the theme of the upcoming Passover holiday we will continue our discussion on financial planning lessons from the seder. In particular discussing the four sons of investing.

Yesterday we discuss the son who doesn’t know how to ask. Today we will discuss Stage 2: The investor who is “wise”: So, After several years, some investors become more educated about personal finance and the markets. They understand the importance of saving for retirement in their 401(k), that they shouldn’t have too much cash sitting in the bank uninvested, and even how to place trades online. In some situations, investors become enthused with personal finance and begin reading blogs, discussing investment tips with friends, and start taking advice from their broke brother-in-law who always has an exciting “opportunity” available to share.

The problem at this stage is when investors think they know it all. Sadly, there is no combination that is more dangerous to your nest egg than overconfidence mixed with a lack of experience. This leads to the following devastating pitfalls: 1) Day trading 2) Market timing 3) Misunderstanding of risk 4) Misinterpreting performance metrics 5) Inability to discern sensible financial advice from quacks who hold themselves out as experts and 6) Trusting the wrong people.

The only saving grace of “Stage 2” is that for many investors it takes place earlier in their career. If it must happen, then it’s best to blow your portfolio up when you don’t have much money and still have earning potential through a long career. However, if you become “wise” ten years before retirement, this can derail your ability to ever retire.


You can WATCH the full video here.