DIY has become sort of a rallying cry during this pandemic. From household projects to haircuts more people are taking it upon themselves to do things for themselves. Even their own investing.
Armed with the Internet, advice from their Uncle Charlie or their cubicle mate, they buy and sell and think that they are making progress. But here’s the thing. Financial management is about more than just buying and selling stocks. It’s about understanding the big picture, keeping-up-to date on regulations and tax implications, knowing the best bucket to tap into when you need cash, and building an overall financial strategy. That’s where a good financial advisor comes in.
The right financial advisor will help you avoid many DIY mistakes. The two most common mistakes we see with new clients are related to: 1) finding cash to purchase a home and, 2) choosing a business entity when starting a new or side business.
We had a new client, Samantha, who had found her dream home. It was a bit out of her budget, but it is the Bay Area after all. Samantha had several types of equity awards, as well as a brokerage account, various IRAs and a 401K. As with many Bay Area home purchases, coming up with the large down payment, especially with a lock-up period coming soon, is tricky. She was about to sell random funds in her brokerage account (which would have created a large capital gain) to meet the down payment. Together we came up with a strategic plan to do a short term borrow from her 401K, and a calculated plan to sell specific shares of stocks to minimize her capital gains tax. As soon as the lock-up was over, she was able to pay back the 401K loan and we kept her capital gains tax to a minimum. And the best part is she has loved being in her new home.
As for the second biggest DIY mistake which is choosing your own business entity for a new business endeavor, please contact us so we don’t have to unravel any corporation blunders.
So, the moral of the story is: thank Uncle Charlie for his advice but tell him your financial advisor has you covered.
We are open for business and ready to help!
