Bogleheads® Conference 2024 When Should a DIY Investor Quit DIYing? with Carolyn McClanahan

Episode Overview

• Financial planner and medical doctor Carolyn McClanahan outlines when do-it-yourself (DIY) investors should seek professional help, drawing from her own frustrating experience trying to hire an advisor.
• The presentation covers the most common and costly mistakes DIY investors make across cash flow, tax planning, asset protection, and estate planning.
• A key theme is the distinction between simple execution (like tax preparation) and complex strategy (like tax and estate planning), which is where professional advice is most valuable.
• The discussion culminates in three specific scenarios—increasing complexity, responsibility for others, and cognitive decline—that should trigger a DIY investor to hire a professional.

Key Concepts

• The DIY Dilemma: The core question of when an investor's financial life becomes too complex, or when life circumstances like aging, necessitate professional financial guidance.
• Holistic Financial Planning: An integrated approach that considers not just investments but also human factors like health, cognitive decline, and life transitions.
• Common DIY Pitfalls: A catalog of frequent mistakes made by self-directed investors, including failure to review cash flow, missed tax planning opportunities, improper asset titling that creates liability, and flawed estate planning.
• Tax Prep vs. Tax Planning: A crucial distinction between the clerical task of filing taxes and the strategic process of planning to minimize them, an area where DIY investors often make costly errors.
• The "Golden Age" of Tax Planning: The period roughly between ages 60 and 70 is identified as a prime window for strategic moves like Roth conversions, as income is often lower before Social Security and RMDs begin.
• Estate Planning Hierarchy: The legal order in which assets are transferred upon death: first by asset titling, second by beneficiary designations, and last by the instructions in a will or trust. A frequent DIY error is creating a trust but failing to title assets into it, rendering it useless.
• Triggers for Seeking Help: Three key situations signal the need for a professional: when finances become too complex, when others are depending on you, and when cognitive decline is a concern.

Quotes

• At 2:37 - "We tried to find a financial planner and they were sales schmucks. They charged too much... All that really meant was investments and not really financial planning." - Describing her negative experience trying to hire a financial advisor, which inspired her to become one.
• At 8:18 - "The big one is they don't notice they're slipping." - Highlighting the significant risk of gradual cognitive decline for aging DIY investors, which can lead to costly financial errors.
• At 12:34 - "I call the age 60 to 70 the golden age of tax planning for retirement because that's when you're not taking social security yet, you don't have required distributions yet." - Identifying the critical 10-year window for strategic tax planning before other income sources kick in.
• At 18:05 - "If you buy a car, the primary driver of the car should be the only... owner of the car. Don't... put it jointly because it's going to be easier later, because that just opens up everybody to being sued if that car's in a wreck." - Explaining how improper asset titling can create unnecessary legal liability.
• At 19:55 - "Pay the couple hundred bucks to get a real power of attorney done or, you know, the thousand, fifteen hundred if your situation is simple... Pay the money to get good estate planning documents done." - Arguing that the cost of professionally drafted legal documents is a crucial investment for ensuring their validity.
• At 21:14 - "They forget to title the assets to the trust. And... a trust doesn't work if you don't title the assets." - Identifying a frequent and critical mistake where people create a trust but fail to fund it, making the document ineffective.
• At 25:49 - "When should you get help? Three situations. I call these the poop piles." - Humorously introducing her three key scenarios that signal when DIY investors should seek professional financial guidance.

Takeaways

• Treat the years between age 60 and 70 as a critical window for tax planning; use this often lower-income period to execute strategic Roth conversions before Social Security and RMDs begin.
• Invest in professionally drafted estate documents from a qualified attorney, as internet-based versions may be rejected by financial institutions, rendering them useless when you need them most.
• Audit the titling on your major assets to ensure they align with your estate plan and liability goals; for example, make sure assets are actually titled into your trust and avoid joint ownership on vehicles.
• Proactively seek professional financial help when your situation becomes too complex, when others depend on your financial decisions, or when you notice the early signs of cognitive decline.