By John Kimelman

Modern financial advisors are schooled in the knowledge needed to steer their clients in the right direction. But at times, it can be even more important to keep those clients from heading in the wrong direction.

Recently Douglas Boneparth, 40, president of Bone Fide Wealth, a New York City-based financial advice firm with $100 million in assets under advisement, responded to a 67-year-old retiree who was spooked by a market correction triggered by the Trump administration's tariff policies.

"She wanted to preserve her principal by going to cash," says Boneparth. "I told her, 'I understand how you feel given the uncertainty that is out there, but I think this is a good moment to review what we need from your portfolio.'"

Art of compromise. Boneparth and the client arrived at a compromise by moving some assets from stocks into Treasuries and certificates of deposit. "That way, I was able to scratch the client's itch without totally abandoning equities, which are needed to grow a portfolio over time," he says. In the process, Boneparth helped the client avert what could have been a big, and all too common mistake -- an unplanned sale, usually based on fear, of an entire equity position.

Avoiding bad choices lies at the heart of How Not to Invest, a new book by Barry Ritholtz, the founder and chief investment officer of Ritholtz Wealth Management, a financial planning firm with $5.6 billion in assets under management. Ritholtz said that the book draws inspiration from leading investment minds such as Charles Ellis, the founder of consulting firm Greenwich Associates and the former chairman of the Yale Endowment, and the late Charlie Munger, a vice chairman at Berkshire Hathaway and Warren Buffett's longtime sidekick. Both investors, says Ritholtz, subscribed to the view that "we are all better off if we just make fewer mistakes."

Politics and investing. One big mistake many investors make, according to Ritholtz, is allowing their political leanings to influence their investment choices. "At our firm, we got a bunch of calls right after [Donald Trump's reelection] in 2024 saying, 'I want to sell my house, I want to liquidate my holdings.'" The only answer to that was "well, history tells us that that is a bad practice." Ritholtz says that investors who sold off their stock positions immediately after presidential leadership changes from 2008 through 2020 forfeited huge gains because the stock market kept going higher.

Ritholtz's point is echoed by Jennifer Li, 38, the director of financial planning at EP Wealth Advisors, a Torrance, Calif.-based firm with $30 billion in assets under management. In the wake of one recent stock market selloff, Li had a client who wanted to exit a position. "Clients have control over their accounts and if they want to sell out of stocks, they can and they will. But in this particular case, we have stayed put so far."

Li pointed out to her client that timing the market rarely leads to good results because investors need to be correct two times, when they enter and when they exit the market. "Studies show that if you stayed put, you would have made more money because oftentimes after a big selloff, the market does recover," Li says.

Social media foibles. She adds that one mistake many investors make is the belief that they can navigate the world of investing and financial planning without some professional guidance. "There is a lot of information out there that you can Google, but there is also a lot of bad information through social media," she says. "The reality is that we all have a unique set of circumstances. So I think the biggest mistake is not hiring a professional to take the emotion out of a situation."

Li points out that issues surrounding tax management alone justify the help and added expense of a professional. "The tax code is extremely complex and everyone's tax makeup is somewhat different," she says. "Many, for example, don't take advantage of tax credits."

Blunders of couples. Boneparth says that the dysfunctional money habits of couples can also provide fertile ground for mistakes. The topic is the subject of a book, Money Together, that Boneparth and his wife Heather have co-written and is due out in October.

"The biggest mistake married couples make is not knowing how to communicate with each other about money," he says. "One classic financial mistake is when one person has all the access and control over the family's finances. Then a death takes place, leaving the other spouse completely in the dark. It's one of the worst things that can happen in life after the worst thing -- a death."

To prevent such a mistake from occurring, Boneparth recommends that couples have frank and wide-ranging discussions about the goals each spouse or partner has regarding the way money should be invested and used. Such conversations can even explore an individual's childhood experiences about money. "You can't just throw a spreadsheet in front of a spouse," he says. "Why not instead have a deeper conversation about money."

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 01, 2025 15:28 ET (19:28 GMT)

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