535-the-top-10-investing-mistakes-we-all-make-cody-garrett

Summary

Episode 535: The Top 10 Investing Mistakes We All Make – Featuring Cody Garrett

Released on February 24, 2025

In Episode 535 of ChooseFI, hosts Jonathan and Brad welcome back their good friend Cody Garrett from Measured Twice Money. Together, they explore the "Top 10 Investing Mistakes We All Make," providing invaluable insights for both DIY investors and financial advisors. This detailed summary captures the essence of their discussion, enriched with notable quotes and timestamps to guide you through each critical point.

1. Asset Location

Timestamp: [03:06]

Cody begins by addressing asset location, which refers to how investors distribute their investments across various account types (taxable brokerage accounts, traditional IRAs, Roth IRAs, etc.). While many investors are meticulous about asset allocation (e.g., maintaining a 60% stock and 40% bond mix), they often overlook the tax implications of where these assets are held.

Key Points:

Taxable Accounts: Best suited for assets that benefit from favorable tax treatments, such as U.S. stocks that provide qualified dividends and long-term capital gains.
Pre-Tax Accounts (Traditional IRA): Ideal for fixed-income investments like bonds, which generate ordinary interest income taxed at higher rates.
Tax-Free Accounts (Roth IRA): Optimal for growth-oriented investments like stocks to maximize tax-free growth.

Notable Quote:

"By putting the taxable bonds within the pre-tax accounts, not only are we avoiding ordinary interest income along the way but also reducing the future growth of the pre-tax accounts which will become taxable income." – Cody Garrett (16:56)

2. Not Investing Contributions or Auto Reinvesting Dividends

Timestamp: [02:34]

Even experienced investors can make the mistake of not fully investing their contributions or forgetting to set up automatic reinvestment of dividends and capital gains. This leads to cash accumulating in money market funds instead of being actively invested.

Key Points:

Accidental Cash: Contributors may forget to invest newly contributed funds, leaving them idle.
Auto Reinvestment: Failing to reinvest dividends and capital gains can result in significant missed growth opportunities over time.
Brokerage Settings: Investors should regularly check their brokerage settings to ensure dividends are set to auto-reinvest rather than being held in cash equivalents.

Notable Quote:

"Just make sure to turn on auto reinvestment of dividends and capital gains distributions." – Brad (20:59)

3. Ignoring Return on Hassle (ROH) When Chasing High Yield Savings Accounts

Timestamp: [03:06 – 24:27]

Cody introduces the concept of Return on Hassle (ROH), urging investors to weigh the time and effort spent on financial optimizations against the actual financial gains achieved.

Key Points:

Cost-Benefit Analysis: Evaluate whether the time spent on chasing marginal interest rate improvements is worth the financial benefits.
Example: Moving $50,000 from a 0.02% to a 4% account could yield nearly $2,000 annually, justifying the hassle. However, a similar move from 3.5% to 4% might only save $250, which may not be worth the effort.
Simplification: Prioritize strategies that offer substantial benefits with minimal hassle to maintain financial and mental well-being.

Notable Quote:

"Every $10,000 of cash that you move to get a 1% higher interest rate is equal to $100 per year of savings." – Cody Garrett (22:15)

4. Charitable Giving Mistakes

Timestamp: [04:36 – 31:21]

Cody highlights a common oversight in charitable giving—donating cash instead of appreciated securities from taxable brokerage accounts. This practice misses out on potential tax benefits and inadvertently increases tax liabilities.

Key Points:

Donating Appreciated Securities: By donating stocks or other appreciated assets directly to charity, investors can avoid capital gains taxes and allow the charity to receive the full donation amount.
Resetting Cost Basis: Giving appreciated securities resets their cost basis, eliminating future capital gains tax when the charity sells the asset.
Donor-Advised Funds: Utilizing donor-advised funds can streamline the donation process and maximize tax benefits over multiple years.

Notable Quote:

"If you give $1,000 in stock rather than $1,000 in cash, the charity gets the full $1,000." – Brad (28:03)

5. Family Giving and Inheritance Planning

Timestamp: [31:21 – 39:21]

Cody discusses the importance of intentional giving during one's lifetime rather than relying solely on inheritance. Many FI enthusiasts accumulate substantial wealth but fail to adequately plan for how they'll distribute it to family and loved ones.

Key Points:

Financial Family Tree: Encourage open discussions about financial support and legacy planning to ensure wealth is transferred in a meaningful and efficient manner.
Generational Considerations: Providing financial support to adult children can prevent large inheritance burdens and support their financial growth.
Behavioral Patterns: Address the tendency to save diligently without refining spending and giving habits, which can lead to unspent wealth at the end of life.

Notable Quote:

"Encourage thoughtful conversations about what I call the financial family tree." – Cody Garrett (34:33)

6. Not Maximizing HSA Contributions Correctly

Timestamp: [39:53 – 47:33]

Health Savings Accounts (HSAs) offer triple tax advantages—tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. However, many investors fail to maximize their HSA contributions due to oversight or misunderstanding contribution limits.

Key Points:

Contribution Limits: Stay updated with annual HSA contribution limits, which can change yearly. In 2025, the limits increased to $4,300 for self-only and $8,550 for family coverage.
Catch-Up Contributions: Individuals aged 55 or older can make additional catch-up contributions ($1,000 each), but it's essential to contribute these to separate HSAs if both spouses qualify.
Employer Contributions: Remember that employer contributions count towards the annual limit, preventing over-contribution.

Notable Quote:

"For 2025, HSA limits have increased to $4,300 for self and $8,550 for family coverage." – Cody Garrett (42:26)

7. Fear of IRMAA and Medicare Premiums

Timestamp: [47:33 – 49:27]

Cody demystifies IRMAA (Income-Related Monthly Adjustment Amount), which affects Medicare premiums based on household income. Contrary to common fears, IRMAA increases do not drastically impact retirement plans.

Key Points:

Premium Caps: Medicare premiums will never exceed 3% of household income across all IRMAA brackets.
Income Thresholds: Small income increases can lead to significant premium hikes due to the cliff-like nature of IRMAA thresholds.
Long-Term Impact: While premiums may increase, they remain manageable within the context of a well-planned retirement strategy.

Notable Quote:

"Your total Medicare Part B and Part D premiums... do not exceed 3% of household income." – Cody Garrett (47:33)

8. Health Insurance Before Medicare

Timestamp: [49:27 – 56:37]

A prevalent concern among those nearing retirement is the cost of health insurance before becoming eligible for Medicare. Cody explains that with strategic financial planning, it's possible to minimize or even eliminate these costs.

Key Points:

Modified Adjusted Gross Income (MAGI): By controlling MAGI through strategic withdrawals and income management, retirees can reduce or eliminate health insurance premiums.
Example Scenario: A couple retiring at 55 with a MAGI of $79,000 might pay $3,000 annually for health insurance, down from $6,000 at a higher income level.
ACA Utilization: The Affordable Care Act (ACA) provides a framework for obtaining health insurance independent of employment, offering options that can be optimized through income management.

Notable Quote:

"They have a modified adjusted gross income of $60,000 and they'll pay nothing for their health insurance premiums." – Cody Garrett (54:10)

9. Not Having a Tax-Optimized Retirement Distribution Strategy

Timestamp: [56:37 – 59:35]

Without a well-thought-out retirement order of operations, retirees may inadvertently trigger higher taxes by withdrawing from accounts in a non-optimized manner.

Key Points:

Distribution Order: Establish a sequence for withdrawing from taxable, pre-tax, and Roth accounts to minimize tax liabilities.
Professional Guidance: Cody recommends consulting with a financial planner to tailor a personalized and tax-efficient distribution strategy.
Financial Planning Resources: Utilize services like AdviceOnlyNetwork.com and HelloNectarine.com for unbiased financial advice without conflict of interest.

Notable Quote:

"Have a retirement order of operations." – Cody Garrett (52:30)

10. Neglecting Holistic Wellness

Timestamp: [59:35 – End]

Cody emphasizes the importance of holistic wellness, which encompasses physical, mental, spiritual, and relational well-being. Focusing solely on financial optimization can lead to neglect in other vital aspects of life, resulting in regret and diminished quality of life.

Key Points:

Balance: Strive for a balanced approach that values financial health alongside personal health and relationships.
Community and Relationships: Building a strong support network and nurturing relationships are crucial for long-term happiness and fulfillment.
Life Beyond Finances: Engage in activities and practices that promote overall well-being, ensuring that financial success translates into a richer, more meaningful life.

Notable Quote:

"Don't let the number of your friends who've died exceed the number of your current friends, regardless of your age." – Cody Garrett (58:25)

Conclusion

Episode 535 of ChooseFI offers a comprehensive exploration of common investing mistakes, presented through the expert lens of Cody Garrett. From optimizing asset location and maximizing HSA contributions to balancing financial strategies with holistic wellness, this episode serves as an essential guide for anyone on the path to financial independence. By addressing these ten critical areas, listeners can enhance their financial strategies, minimize tax liabilities, and ensure a fulfilling, well-rounded life.

Additional Notable Quotes

"Every $10,000 of cash that you move to get a 1% higher interest rate is equal to $100 per year of savings." – Cody Garrett (22:15)
"If you give $1,000 in stock rather than $1,000 in cash, the charity gets the full $1,000." – Brad (28:03)
"Don't let the number of your friends who've died exceed the number of your current friends, regardless of your age." – Cody Garrett (58:25)

For more insights and resources, visit choosefi.com and explore their comprehensive offerings, including the new member site, local groups, and free financial courses.

Summary

Episode 535: The Top 10 Investing Mistakes We All Make – Featuring Cody Garrett

Released on February 24, 2025

1. Asset Location

Timestamp: [03:06]

Key Points:

Taxable Accounts: Best suited for assets that benefit from favorable tax treatments, such as U.S. stocks that provide qualified dividends and long-term capital gains.
Pre-Tax Accounts (Traditional IRA): Ideal for fixed-income investments like bonds, which generate ordinary interest income taxed at higher rates.
Tax-Free Accounts (Roth IRA): Optimal for growth-oriented investments like stocks to maximize tax-free growth.

Notable Quote:

"By putting the taxable bonds within the pre-tax accounts, not only are we avoiding ordinary interest income along the way but also reducing the future growth of the pre-tax accounts which will become taxable income." – Cody Garrett (16:56)

2. Not Investing Contributions or Auto Reinvesting Dividends

Timestamp: [02:34]

Key Points:

Accidental Cash: Contributors may forget to invest newly contributed funds, leaving them idle.
Auto Reinvestment: Failing to reinvest dividends and capital gains can result in significant missed growth opportunities over time.
Brokerage Settings: Investors should regularly check their brokerage settings to ensure dividends are set to auto-reinvest rather than being held in cash equivalents.

Notable Quote:

"Just make sure to turn on auto reinvestment of dividends and capital gains distributions." – Brad (20:59)

3. Ignoring Return on Hassle (ROH) When Chasing High Yield Savings Accounts

Timestamp: [03:06 – 24:27]

Cody introduces the concept of Return on Hassle (ROH), urging investors to weigh the time and effort spent on financial optimizations against the actual financial gains achieved.

Key Points:

Cost-Benefit Analysis: Evaluate whether the time spent on chasing marginal interest rate improvements is worth the financial benefits.
Example: Moving $50,000 from a 0.02% to a 4% account could yield nearly $2,000 annually, justifying the hassle. However, a similar move from 3.5% to 4% might only save $250, which may not be worth the effort.
Simplification: Prioritize strategies that offer substantial benefits with minimal hassle to maintain financial and mental well-being.

Notable Quote:

"Every $10,000 of cash that you move to get a 1% higher interest rate is equal to $100 per year of savings." – Cody Garrett (22:15)

4. Charitable Giving Mistakes

Timestamp: [04:36 – 31:21]

Key Points:

Donating Appreciated Securities: By donating stocks or other appreciated assets directly to charity, investors can avoid capital gains taxes and allow the charity to receive the full donation amount.
Resetting Cost Basis: Giving appreciated securities resets their cost basis, eliminating future capital gains tax when the charity sells the asset.
Donor-Advised Funds: Utilizing donor-advised funds can streamline the donation process and maximize tax benefits over multiple years.

Notable Quote:

"If you give $1,000 in stock rather than $1,000 in cash, the charity gets the full $1,000." – Brad (28:03)

5. Family Giving and Inheritance Planning

Timestamp: [31:21 – 39:21]

Key Points:

Financial Family Tree: Encourage open discussions about financial support and legacy planning to ensure wealth is transferred in a meaningful and efficient manner.
Generational Considerations: Providing financial support to adult children can prevent large inheritance burdens and support their financial growth.
Behavioral Patterns: Address the tendency to save diligently without refining spending and giving habits, which can lead to unspent wealth at the end of life.

Notable Quote:

"Encourage thoughtful conversations about what I call the financial family tree." – Cody Garrett (34:33)

6. Not Maximizing HSA Contributions Correctly

Timestamp: [39:53 – 47:33]

Key Points:

Contribution Limits: Stay updated with annual HSA contribution limits, which can change yearly. In 2025, the limits increased to $4,300 for self-only and $8,550 for family coverage.
Catch-Up Contributions: Individuals aged 55 or older can make additional catch-up contributions ($1,000 each), but it's essential to contribute these to separate HSAs if both spouses qualify.
Employer Contributions: Remember that employer contributions count towards the annual limit, preventing over-contribution.

Notable Quote:

"For 2025, HSA limits have increased to $4,300 for self and $8,550 for family coverage." – Cody Garrett (42:26)

7. Fear of IRMAA and Medicare Premiums

Timestamp: [47:33 – 49:27]

Key Points:

Premium Caps: Medicare premiums will never exceed 3% of household income across all IRMAA brackets.
Income Thresholds: Small income increases can lead to significant premium hikes due to the cliff-like nature of IRMAA thresholds.
Long-Term Impact: While premiums may increase, they remain manageable within the context of a well-planned retirement strategy.

Notable Quote:

"Your total Medicare Part B and Part D premiums... do not exceed 3% of household income." – Cody Garrett (47:33)

8. Health Insurance Before Medicare

Timestamp: [49:27 – 56:37]

Key Points:

Modified Adjusted Gross Income (MAGI): By controlling MAGI through strategic withdrawals and income management, retirees can reduce or eliminate health insurance premiums.
Example Scenario: A couple retiring at 55 with a MAGI of $79,000 might pay $3,000 annually for health insurance, down from $6,000 at a higher income level.
ACA Utilization: The Affordable Care Act (ACA) provides a framework for obtaining health insurance independent of employment, offering options that can be optimized through income management.

Notable Quote:

"They have a modified adjusted gross income of $60,000 and they'll pay nothing for their health insurance premiums." – Cody Garrett (54:10)

9. Not Having a Tax-Optimized Retirement Distribution Strategy

Timestamp: [56:37 – 59:35]

Without a well-thought-out retirement order of operations, retirees may inadvertently trigger higher taxes by withdrawing from accounts in a non-optimized manner.

Key Points:

Distribution Order: Establish a sequence for withdrawing from taxable, pre-tax, and Roth accounts to minimize tax liabilities.
Professional Guidance: Cody recommends consulting with a financial planner to tailor a personalized and tax-efficient distribution strategy.
Financial Planning Resources: Utilize services like AdviceOnlyNetwork.com and HelloNectarine.com for unbiased financial advice without conflict of interest.

Notable Quote:

"Have a retirement order of operations." – Cody Garrett (52:30)

10. Neglecting Holistic Wellness

Timestamp: [59:35 – End]

Key Points:

Balance: Strive for a balanced approach that values financial health alongside personal health and relationships.
Community and Relationships: Building a strong support network and nurturing relationships are crucial for long-term happiness and fulfillment.
Life Beyond Finances: Engage in activities and practices that promote overall well-being, ensuring that financial success translates into a richer, more meaningful life.

Notable Quote:

"Don't let the number of your friends who've died exceed the number of your current friends, regardless of your age." – Cody Garrett (58:25)

Conclusion

Additional Notable Quotes

"Every $10,000 of cash that you move to get a 1% higher interest rate is equal to $100 per year of savings." – Cody Garrett (22:15)
"If you give $1,000 in stock rather than $1,000 in cash, the charity gets the full $1,000." – Brad (28:03)
"Don't let the number of your friends who've died exceed the number of your current friends, regardless of your age." – Cody Garrett (58:25)

For more insights and resources, visit choosefi.com and explore their comprehensive offerings, including the new member site, local groups, and free financial courses.