Financial Planning Mistakes: The Most Risky Moves Aren’t What You Think

Bruce said something on the show that stuck with me because it’s so honest:

Everyone thinks they’re an aggressive investor… until they lose money.

And it’s true. Most people don’t even realize the biggest financial planning mistakes they’re making until the moment something “unexpected” happens: a market drop, a job change, a medical curveball, an opportunity they can’t jump on because their money is locked away.

Bruce also joked that when people go to casinos, nobody ever admits they lost. They either “won” or “broke even.” But those crystal chandeliers weren’t paid for by winners.

That’s exactly what happens in real life with money. In the good years, we feel smart. In the up markets, we feel confident. And when everyone around us is sharing their “wins,” it’s easy to believe the biggest risk is simply not being invested enough.

But then the market drops. A business hits a slow season. A medical issue shows up. Interest rates shift. Taxes rise. Or the opportunity you’ve been praying for appears—and your cash is locked up, waiting on someone else’s permission.

That’s what today’s conversation is about: the sneaky, everyday financial planning mistakes that create real risk—often more than the stock market ever will.

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What Most Financial Planning Mistakes Really Look Like

When most people hear the word “risk,” they immediately think of market volatility. The stock market goes up and down. Inflation eats purchasing power. Taxes change. Interest rates rise.

Those are real risks. But they’re not the only risks—and for many families, they’re not even the biggest ones.

Some of the most risky moves in financial planning are the ones that feel “normal”:

• Chasing returns because you don’t want to miss out
• Locking money away without liquidity
• Relying on assumptions instead of strategy
• Outsourcing too much control and decision-making
• Ignoring tax risk until required minimum distributions force your hand
• Building retirement plans without accounting for sequence of returns risk

This post is designed to help you identify the financial planning mistakes that quietly erode your financial strength. You’ll also learn a simple framework—safety, liquidity, and growth—that makes decisions clearer, and helps you reduce risk in ways most financial conversations never touch.

If you want more control, more flexibility, and more confidence in your future, this is for you.

Financial Planning Mistakes Start With Misunderstanding “Risk”

Risk is a subjective word. What feels risky to you might feel normal to your friend, your neighbor, or even your spouse. People in the same family can interpret “risk” in completely different ways.

That’s why generic risk questionnaires often miss the point. They may score your “risk tolerance,” but they can’t fully capture how you’ll actually respond when real money is on the line and emotions show up.

One of the clearest ways to surface what risk truly means to you is to compare two types of risk most people don’t realize they carry:

• The risk of losing money (or seeing your account value drop)
• The risk of missing upside (watching the market rise while your portfolio lags)

Here’s a simple question that cuts through the noise:

If the stock market goes up 20% and you only go up 5%, does that make you feel worse than if the market goes down 20% and you go down 20%—but you could have only gone down 5%?

Both matter. Both affect behavior. Both can lead to costly decisions—especially if your plan was built without understanding which kind of risk you actually can live with.

Risk tolerance vs risk capacity (and why it matters)

Another layer that’s often overlooked is the difference between risk tolerance and risk capacity.

Risk tolerance is emotional. It’s how you feel.

Risk capacity is structural. It’s whether you can absorb a financial hit without changing your life, your timeline, or your goals.

Someone might feel “aggressive” in theory—but if they can’t open their investment statements during a downturn, that’s a signal. If a portfolio drop would force them to delay retirement, sell assets at the wrong time, or sacrifice lifestyle essentials, that’s a signal too.

Many financial planning mistakes happen when confidence is treated as a plan.

Financial Planning Mistakes: Chasing Returns vs Long-Term Financial Security

One of the most common risky financial planning moves is chasing returns without thinking through the cost of the downside.

It’s easy to get pulled into what looks like success—especially when you’re only seeing the highlight reel.

People talk about the big win:

• The stock that exploded
• The crypto run
• The rental property that doubled
• The syndication that paid great returns for a few years

What you don’t hear as often is the full story: the losses, the near-misses, the stress, the deals that didn’t work, the years where returns were negative, or the moment one major downturn wiped out a decade of progress.

There’s also a common belief that causes people to justify risky moves:

“More risk means higher returns.”

That’s not what higher risk means. Higher risk means higher potential for loss. Sometimes you win big. Sometimes you lose big. And it only takes one major loss to erase years of steady gains.

This is why chasing returns vs long-term financial security is such an important conversation. The goal isn’t to catch every upside. The goal is to build a system that lets you keep moving forward—regardless of what the economy does.

The hidden cost of FOMO

Fear of missing out isn’t just emotional—it changes behavior.

It can push you to:

• Abandon a sound plan for a trendy one
• Overconcentrate in one asset class
• Take on leverage you wouldn’t normally take
• Move money too quickly without understanding what you’re buying

FOMO convinces you that the risk is “not being in.” But sometimes the real risk is being in something you don’t understand, can’t control, and can’t exit cleanly.

The Safety, Liquidity, and Growth Framework

There are three primary attributes that matter in every financial decision:

• Safety
• Liquidity
• Growth

Most people have been taught to focus almost exclusively on growth. That’s why financial planning mistakes are so common—because growth is only one part of the equation.

You generally can’t maximize all three attributes in one place. Each asset carries trade-offs.

That doesn’t mean you avoid growth. It means you assign each bucket of money a purpose—and then choose the asset that does that job best.

How to balance safety, liquidity, and growth in a portfolio

A better question than “What’s the best investment?” is:

What is this money supposed to do?

Different dollars have different jobs.

• Some dollars are meant to be stable and accessible (emergency reserves, opportunity funds, tax buffers).
• Some dollars can take on long-term growth risk (true long-term capital).
• Some dollars are meant to create income, serve as a legacy tool, or act as a stability anchor.

When every dollar is forced into a growth-only mindset, families create unnecessary vulnerability.

Liquidity Risk in Financial Planning: Locking Money Away Without Realizing It

Liquidity risk is one of the most underestimated financial planning mistakes.

It shows up when you can’t access your money without:

• penalties
• approvals
• delays
• forced timing
• market losses
• gatekeepers

It might be your money, but it isn’t in your control.

This can happen in many places:

• retirement accounts with early withdrawal penalties
• strategies that require “qualifying” to access cash
• equity trapped in assets that can’t be sold quickly
• products that take months (or longer) to unwind
• investments that require perfect conditions to exit

A real example: someone retiring from a school system is offered a pension decision—take a higher monthly payment, or reduce it to take a lump sum. The lump sum sounds like “freedom,” but if it must be rolled to an IRA and the person is under 59½, access is restricted without penalty.

That’s a liquidity problem. And it’s a control problem.

“Locking money away without liquidity” is often disguised as “being responsible”

Many people make decisions that look responsible on paper—max out accounts, tie up funds in long-term assets, prioritize tax deferral—without realizing they may be creating a fragile structure.

A strong plan isn’t the one that looks best in a spreadsheet.

A strong plan is the one that functions well in real life.

Financial Planning Mistakes: Outsourcing Control and Financial Thinking

One of the most dangerous risks isn’t volatility.

It’s giving up your ability to think and decide.

When you outsource your financial thinking, you may end up in a plan you don’t understand—and when you don’t understand it, you’re not confident. When you’re not confident, you’re more likely to abandon the plan at exactly the wrong time.

There are two common versions of this:

1) Relying on assumptions instead of strategy

Assumptions about:

• what markets will do
• what interest rates will do
• what inflation will do
• what taxes will do
• what “average returns” will look like in your actual retirement window

Assumptions feel harmless because they don’t require action today.

But they can quietly determine your future.

2) Giving up access and permission

When money is placed into systems that require permission—whether from an institution, a regulation, or timing—you’ve introduced a risk that most people don’t calculate.

Control matters because life is dynamic.

A good plan isn’t just about “return.” It’s about responsiveness.

Retirement Planning Mistakes: Why the “Way Down the Mountain” Is Harder

A helpful illustration: climbing Mount Everest. More people die going down than going up.

Retirement works the same way.

Before retirement, if the market drops or life gets expensive, you can often delay retirement, earn more, adjust contributions, or change course.

After retirement, the options narrow. It’s harder to re-enter the workforce. It’s harder to rebuild. And it’s harder to recover from mistakes.

That’s why the question isn’t only: “How do I get to retirement?”

It’s also: “How do I stay stable through retirement?”

What is sequence of returns risk in retirement?

Sequence of returns risk is the danger of experiencing poor returns early in retirement while you’re withdrawing income.

If the market drops and you’re pulling distributions, you may be forced to sell assets at depressed values. That can shrink the portfolio faster than expected—and it may not recover, even if long-term averages eventually look “normal.”

That’s why a retirement plan built only on historic averages can still fail.

Your retirement years are not 50 years. They might be 20. And within 20-year windows, there are periods that can be very different from the long-term historical story.

How to reduce sequence of returns risk

One of the most practical ways is to have a non-volatile, safe, liquid pool of capital that can be used during down markets—so you’re not forced to sell growth assets at the worst possible time.

This is where structure becomes more important than predictions.

Tax Risk: Required Minimum Distributions and the Inherited IRA 10-Year Rule

Tax risk is one of the quietest financial planning mistakes—because it often hits later, when you feel like you should be “done” planning.

Here’s the pattern:

Someone builds a strong retirement account. They retire. Their income is covered from other sources. The IRA becomes “extra.”

Then required minimum distributions show up.

Required minimum distributions tax planning

RMDs can force taxable withdrawals whether you need the income or not. That means:

• higher taxable income
• potentially higher tax brackets
• less control over timing
• more tax drag on wealth that could have been managed differently

Inherited IRA 10-year rule taxes (SECURE Act)

Then, if those funds pass to children or heirs, they may be required to withdraw the balance within a limited timeframe.

That can stack taxable distributions on top of their working income—often during their highest-earning years—creating a bigger tax bite than most families anticipated.

This is one reason legacy planning is not just estate documents.

The “how” matters.

How to Minimize Risk: Whole Life Insurance Cash Value – Liquidity and Legacy Protection

If risk exists during your lifetime and beyond your lifetime, then one of the smartest questions is:

How do we create a system that reduces risk across generations?

One tool that can help—when properly designed—is whole life insurance.

The value isn’t just the death benefit. It’s the combination of:

• guarantees
• liquidity through cash value access
• stability that isn’t dependent on market volatility
• the ability to use it as a volatility buffer
• the ability for the death benefit to restore wealth when someone passes

This can become part of a family strategy where capital is accessible during life, and then the risk that was taken with that capital can be replenished when someone graduates from this earth.

Whole life insurance as a volatility buffer

A properly designed whole life policy can provide a pool of capital you can access—especially when markets are down or when opportunities arise.

That can help reduce forced selling and support more thoughtful decision-making.

A personal note on why this matters

A near-death experience changes what you pay attention to.

Life isn’t guaranteed. And the goal isn’t simply to have money.

The goal is to create the best possible outcome for the people you love—no matter what day your story ends.

That’s what motivates the focus on safety, liquidity, and control.

What to Remember and What to Do Next

The biggest financial planning mistakes usually aren’t dramatic.

They’re subtle. They’re common. They often sound like good advice—until you live through the downside.

Here are the risky moves we covered:

• chasing returns vs long-term financial security
• liquidity risk in financial planning through locking money away without liquidity
• relying on assumptions instead of strategy
• outsourcing financial thinking and control
• ignoring sequence of returns risk in retirement
• underestimating tax risk through required minimum distributions and inherited IRA rules

The solution isn’t fear. It’s clarity.

When you assign each bucket of money a purpose and evaluate it through safety, liquidity, and growth, you can reduce risk while still building wealth—and you can build a plan that functions well in real life.

Listen to the Full Episode on Financial Planning Mistakes

If you want to go deeper on financial planning mistakes—and hear the full conversation behind the stories and examples—listen to the full podcast episode.

In this episode, you’ll hear:

• how to think about risk in a more personal, realistic way
• why missing upside and losing money are both forms of risk
• how overconfidence and FOMO can drive risky financial planning moves
• why retirement can be more dangerous than the path to retirement
• how sequence of returns risk can quietly derail retirement income
• why liquidity and control matter more than most people realize
• how tax risk shows up through required minimum distributions and inherited IRA rules
• why properly designed whole life insurance can help reduce risk and support legacy planning

If you’re serious about avoiding financial planning mistakes, start here: don’t let indecision decide for you.

Make a decision. Learn. Adjust as you gain better information. But don’t drift.

Podcast: Play in new window | Download (59.3MB)

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And if you want help building a plan that increases control, flexibility, and long-term stability, listen to the episode and then connect with our team through The Money Advantage.

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