Commonplace Mistakes Made with Confidence

In a recent conversation between two major figures in the financial planning world (Carl Richards & Michael Kitces), a poignant analogy was made: “Are we not simply guides through an ever-changing landscape?” The context made herein was that of someone who had just returned from skiing in avalanche country, and the overconfidence they might display in the face of being questioned as to whether that was wise. “I wasn’t buried alive last time I skied through, why would it be any different the next time?”

Yet, such overconfidence, even the most singular-iteration one-data-point examples of a good bet gone well can lead us into disaster. Imagine playing a single hand of Blackjack. “Came up 21, I must be god’s gift to gambling.” One might think. Of course, in the face of such an example, we would all scoff at the idea that playing a single hand was evidence of any kind that someone was more or less talented at gambling, let alone in the face of any other activity.

However, that sort of anti-skepticism is exactly what we see in many people’s financial decision-making framework. So today, we’re highlighting modern behavior that mirrors the old adage from Mark Twain that: “It ain’t what you know that gets you in trouble, but what you know that just ain’t so.”

Let’s Compare Portfolios

I have a very simple answer when someone, anyone, asks me to compare portfolio performance. “Let’s not.” It’s not to say that we can’t or don’t compare performance, but rather, that we decline to engage in comparing performance, whether it be past-tense or going forward, because the outcomes of such activity are easily predictable. The outcomes can be summarized as follows:

Seems straightforward enough, no? Whether we look at our past performance and compare, or whether we make a bet on who’s a better investor going forward, the only material factors in a short timeframe are going to be who took on more risk than the other and whether the time spent in the markets rewards that decision. Now, if we zoom out far enough over a lifetime rather than a few months or a year or two, we’d likely see that the winner is going to be whoever took the most risk (more or less inclusive of whether systematic risk was diversified away). On the odd chance that you concentrated all of your money in one asset or another, it’s going to come down to whether you concentrated in something like Bitcoin over the last decade or Blockbuster stock.

Yet, this is perhaps simultaneously the most common and boring dinner conversation I’m asked to engage in as a financial planner. “Wow, you manage millions of dollars. What are your returns?” While I can comfortably answer the question based on risk tolerance and timeframe over the past decade, the answer is irrelevant in the face of the statement that inevitably follows: “Wow, that’s [way better/way worse] than me, I [invested/didn’t invest] in [asset].” The bitcoin guy smirks, the blockbuster guy looks embarrassed, and we all wish the waiter would come back and ask about whether we want to see a dessert menu or take the check.

Now, it’s not to say that someone can’t be worth their salt as a portfolio manager or outperform their peers. But as the observation goes that ten thousand people flipping coins will inevitably have at least nine people who came up “Heads” every time after ten flips, this can often come down to luck more than skill. Put differently, it’s easy to mistake not being buried by an avalanche as being an incredible skier. Managing investments is little different.

That’s also not to say that there isn’t value in selecting investment assets and building a more or less aggressive portfolio. The key distinction there, however, is the decision to be invested in alignment with your long-term goals, and then, most importantly: Not to tinker with it. For better or worse, the tinkering part is the bit that gets more people than the long-term investment selection.

You Should [Never] Invest Your Emergency Fund

Let’s explain this idea with a brief parable:

A man, mistrustful of banks and otherwise worried about financial catastrophes, buries $10,000 in his backyard on July 22^nd of the year 2020. Today, 25 years later, he digs up the $10,000, which is fully intact and ready to be spent. Question: How much money does the man have? The literal answer? $10,000. The technical answer: Less than $10,000, depending on your perspective.

The problem is that $10,000 in 2020 would have purchased $12,463.19 in 2025’s future value back in 2020. Despite not losing a dollar to theft, bank errors, or passing ground squirrels, the $10,000, while technically intact, has lost almost a quarter of its purchasing power. While no one would complain about digging up ten thousand dollars today, the problem is that too many people are metaphorically burying their money in the backyard or stuffing it under their mattress.

Yet, there is a separate cohort making an equally foolish decision: Converting all of their savings into securities and gambling them in the market. While the argument for this decision runs in the opposite direction of burying one’s money in the backyard, the problem is that it’s akin to putting your savings into a casino. While I don’t buy the argument that investing in the stock market is gambling per se, I do buy into the old adage that you should never invest more than you can afford to lose; and therein is the problem.

The truth of the matter is that your emergency fund does need to be invested in some way to preserve its value as an emergency fund. But that doesn’t mean you need to take wild risks with it. My general recommendation for savings ranging the classic three-to-six-months recommendation typically looks something like this:

• One month of expenses (above your normal spending) in checking. This means you should have a cash balance in checking that steadily increases and decreases up to and down from two and one months of expenses.
• Two months of expenses in a high-yield savings account. In today’s environment (July 22nd, 2025), a high-yield account should pay more than 3.5% but probably doesn’t pay more than 4%.
• Pause

The pause that occurs here relies on some conditional understandings of your situation. If you are single and have a very stable or secure job, e.g., you’re a military servicemember or a postal worker, then you can probably call it quits here. If you’re married to a spouse who earns a similar level of income to you and has a job in a completely different industry than you, you can probably stop here. But if you’re single and have a volatile career environment, married with a breadwinner in the household or only one income, or are an entrepreneur or someone with highly variable income (e.g., sales, realtor, etc.) then you should go ahead and add one more layer to the mix:

• Three months of expenses in <12 month certificates of deposit (CDs) offering a yield greater than your high-yield savings. It’s particularly preferable if they are no-penalty CDs that you can redeem at any time.

Now that you’re at six months, then what? What if you were in the latter camp and you were set at three months? Well, now we cross over from needing guaranteed periods of three or six months to being able to invest. But should we jump into non-retirement brokerage accounts, crypto, or trips to Blackhawk to try our luck? Not just yet. It depends on your objectives, but at this point, you can afford to fund money markets or high-yield savings for short-term goals such as a home down payment, new car, or exciting trip. If those are funded or you don’t have anything like that on the horizon, then consider increasing or maximizing your contribution to retirement accounts. Unsure about the mid-term, rather than short-term needs or long-term goals? Then it wouldn’t hurt to hedge your bets by splitting extra savings between retirement and non-retirement investments; just be conscious about the value and purpose of saving money rather than simply investing for the sake of doing so.

The fundamental point is this: Leaving your savings uninvested is foolish because it’s all but guaranteed to lose purchasing power. Taking undue risks with your emergency fund is just as foolish, if not more.

Cutting Your Losses

Yesterday, at a Chamber of Commerce ribbon-cutting, I got into a conversation with an office equipment salesman who takes an active interest in his personal finances and investments; a quintessential DIYer, but a pleasant sort to hold a conversation with. At one point in our conversation, he asked the question: “Shouldn’t I cut my losses? Like I bought a healthcare fund after the ACA passed and it’s done only half as well as my tech investments.”

Therein we have a classic example: Cutting your “losses,” not because they’re losing money or bad investments, but because you have something else doing better. A similar question arises for financial planners all the time: “Why not just not [VOO/VTI/SPY] and chill?” But that decision, particularly in reflection of selling some other investment to buy into another, is often the reflection of the classic mistake: Sell low and buy high. Put differently, Warren Buffett cautioned that we should be greedy when others are fearful and fearful when others are greedy. When we get distracted by the shiniest thing in our portfolio, we often make the mistake of giving up on something that’s lagging in favor of something that’s become overpriced.

Last year, it wasn’t uncommon to see people sharing that they’d decided to buy into Nvidia stock. While Nvidia did well in 2024, gaining over 171% in a one-year period beginning January 1^st to December 31^st in 2025, many folks were piling in during the summer. While the stock has continued to grow well since July of last year, they were doing so only after the stock had tripled in the year prior and gone up by over 10x in the five years preceding.

Therein, we find the risk of the “shiny object.” While there can be good cause to sell your blockbuster stock if you’re still holding onto it for some reason (spoilers: you’ll have to surrender it to your brokerage, it’s worthless now), the desire to sell your laggards in favor of your winners is a mistake we’re all inclined to make. Yet, despite all the aforementioned wisdom about greed, fear, and not making the classic investing mistake, why do we do it? Because we’re only a few thousand years removed from decisions that ran the binary from “store the food safely” or “lose all your food and starve.” For all our intellectual accomplishments, we’re fundamentally risk-averse, and while “fear of missing out” is a commonplace complaint in the world of investing, “fear of losing out” is just as prevalent.