Mistake #1: Overconcentration in Company Stock

Let’s start with the granddaddy of high-earner headaches: overconcentration in company stock. This one sneaks up when you least expect it, especially for our superstar tech engineers, pharma managers, or anyone tied to a firm dishing out lots of equity.

Picture this: Your spouse is at a top tech company. A significant portion of their income comes from RSUs (Restricted Stock Units), stock options, or an Employee Stock Purchase Plan. Nice problem to have, right? Until you take a snapshot of your net worth and see that a big, juicy chunk is riding on a single stock—your employer’s stock.

And trust me, this is way more than just a “tech thing.” Pharma, big business, and even some medical groups do it. I’m not saying your company won’t go to the moon, but remember Enron? If you’re too young to remember, ask Google—thousands of people had not only their salaries but their life savings vaporize when that ship sank.

The double whammy? If the business falters, you risk losing both your job and your investment simultaneously. Now that’s a stomach-churner.

My belly starts to make some weird sounds just thinking about too much money tied up in one place. For some, it’s ESOP plans (Employee Stock Ownership Plans). These usually limit how much you can overload on company stock, but even there, employees near retirement (think ages 60-70) sometimes have the option to peel away shares and slide the proceeds into a 401k, often with some tricky tax rules in the mix.

So, what is “too much”? Every household is different, but I’ll throw out numbers. For solid, blue-chip companies, some experts are comfortable with 5% to 10% of net worth. Get up to 15%? OK, my worry meter is ticking up. When you cross 20%? Now I’m getting the cold sweats.

How to Avoid Overconcentration

The fix here is all about attention and action. Don’t wait for a headline disaster.

Set your max: Work with a financial planner (or just set your own rule) and lock in your comfort level. Most people should stay under 10%, maybe up to 15% for an industry giant. Above that, danger zone.

Put a system in place. When new shares vest or become available, don’t waffle. Sell right away and build your moat. A simple plan looks like this:

• Know your number: Check what percentage of your net worth is invested in employer stock.
• Sell vested shares: Don’t let them pile up and tempt you.
• Mind the taxes: Sales can trigger tax bills—ask for help if needed.
• Diversify: Use that cash to buy broad, boring, time-tested stuff like S&P 500 index funds or bonds.

If your company stock flops, you won’t lose everything. Remember: The S&P 500 is 500 companies for a reason. If one tanks, you’ve still got 499 working for you.

Not just tech or pharma? This sneaky risk can infiltrate various industries. The “don’t put all your eggs in one basket” rule is old advice for a reason—it works.

Mistake #2: Chasing Performance

Time to talk about FOMO. Everyone’s favorite flavor of regret. Here’s what happens: You hear your well-paid friend rave about a “hot sector” at the hospital cafeteria (worst place ever for investment advice, by the way). Or your news feed blasts the next big winner every other week. The temptation? Dump your money into what’s been smoking hot lately.

The truth—even the smartest Wall Street pros, who get paid boatloads to time things, get it wrong over and over. Not because they’re not brilliant, but because markets are wild, unpredictable, and impossible to time with any consistency.

Think about Warren Buffett. He’s a legend, right? But not because he jumps around chasing the next meme stock. He picks companies he understands, helps them grow, and ignores the day-to-day noise that freaks everyone else out.

For high-income folks, the “performance chase” can be extra strong. When you hear people with big salaries brag about crushing one sector or another, some part of your lizard brain thinks, “Hey, they’re smart, I’m smart, I’m missing out.”

Sometimes, major news events (especially elections) prompt people to rush to the bank. I hear, “Get me to cash! The world’s ending!” all the time. Guess what? The world doesn’t end, the market rebounds, and it’s almost impossible to time getting back in. Miss a handful of good days and poof—years of returns vanish.

How to Avoid Chasing Performance

Skip the hype. Make rules. Stick to them. Boring is beautiful.

Start with an Investment Policy Statement (IPS): This is your permission slip to ignore the noise. It covers:

• Your risk comfort: Are you young and bold? Stock-heavy is fine. Closer to retirement? Dial it down.
• Rebalance triggers: Set rules—maybe once a year, or when things get out of whack by 5%.
• Only make changes on schedule: Not after headlines, Twitter trends, or political rants.

Get a sounding board. Having a financial advisor, or at least a partner who talks you off ledges, is worth its weight in gold. When your gut says “ditch it all,” someone can remind you that reactivity is a wealth killer.

Stick with modern portfolio theory: Fancy term, but it means building a spread-out, low-cost basket that fits your needs. Here’s a cheat sheet:

• Retirement savings: Lean stock-heavy if you’ve got decades to go.
• Taxable accounts: Smooth it out—add some municipal bonds or short-term funds for downside cushioning.
• Short-term buckets: You want cash or at least a high-yield money market. Don’t risk dollars you’ll need soon.

And please, don’t bet the farm on your buddy’s “can’t-miss” tip. Everyone’s an expert until they’re not.

Mistake #3: Ignoring Tax Efficiencies

Here comes the tax man! If you bring in a big income and don’t watch out for taxes, your portfolio starts bleeding money one little 1099 at a time.

First, max out those pre-tax retirement accounts. This is especially important in high-income households. But the real risks often show up in taxable brokerage accounts—the money in your “normal” investment account, not your 401k. Why? Because mutual funds, some ETFs, or certain bonds can throw off taxable income each year. They send you a 1099, and suddenly the IRS wants a slice, whether you took the money out or not.

Using bad asset location is another biggie. If you put tax-inefficient stuff (like high-yield bonds, funds that spit out lots of income, or even real estate investment trusts) in your taxable account, you’re lighting money on fire. Do it in your 401k or IRA instead—nobody cares how much it pays out, because you’re not taxed now.

But don’t swing too far. Sometimes, especially in your earlier “accumulator” years (a.k.a. the grind), it can still make sense to put some bonds in taxable accounts if you need access.

How to Maximize Tax Efficiency

Here’s how to stay ahead of Uncle Sam, without working harder.

1. Max your retirement plans: Load up your 401k. Squeeze in Roth IRA contributions if allowed. Only then move to taxable investing.
2. Pick smart investments: ETFs should be a lot more tax-efficient than mutual funds. If you’re in a high bracket, municipal bonds are your friend—tax-free income you can use now.
3. Mix your assets: In taxable accounts, growth stocks and ETFs push out less income. Bond interest is best kept out of taxable if you can help it, unless it’s a muni.
4. Check your plan: Some advisors use separate accounts (SMAs) with extra tax tricks. Ask for details, but don’t put all growth assets in one pot if you want real-world access.

Sample Tax-Efficient Investment Table

Investment Type	Taxable?	Best Account
US Index ETFs	Low	Taxable or Retirement
Individual Stocks	Typically Low	Taxable or Retirement
Municipal Bonds	Tax-Free	Taxable
High-Yield Bonds	High	IRA or 401k (avoid taxable)
Mutual Funds	High/Varies	Prefer Retirement or select efficiently managed funds

Bottom line: Minimize your yearly tax headaches and keep more of what you earn. Not every year will be perfect, but don’t ignore the simple wins.

Bonus Mistake #1: Not Understanding Fees

Fees—they don’t sound sexy, but holy cow, do they matter. Too many investors ignore what’s getting skimmed from their returns, and it’s a silent wealth killer.

Let’s keep it easy. Say you switch from a fund charging 0.95% to another charging 0.25%. It may look small, but you’ve just earned an additional 0.70% in returns. That’s real money year after year.

Here’s what to look for:

• Expense ratios: This refers to the costs associated with your mutual fund or ETF. Zero on individual stocks.
• Advisory fees: If you have a planner, they typically charge a percentage of assets under management (AUM)—often about 1%, maybe less with bigger accounts.
• Platform fees: Some advisors manage your money through a third-party platform (often referred to as TAMPs, such as Vanguard’s Personal Advisor at 0.30%). It adds up.

Add it all up? Three layers of fees can turn your fancy investment plan into a returns-eating monster.

How to Stay Fee-Smart

• Get a breakdown: Your statement should list expense ratios, advisor rates, and platform costs.
• Switch smart: Ditch high-cost funds for low-cost index ETFs tracking the same thing.
• Ask questions: Never feel dumb for asking how much you’re paying. This is one of the best ways to increase your performance.

Sometimes, saving yourself half a percent is the easiest win in your entire investment life.

Bonus Mistake #2: Falling for Recency Bias

Recency bias—sounds fancy, but it’s just the urge to load up on whatever’s been winning lately. This is how people end up with everything in tech stocks (because the last 8 of 10 years, US large cap and tech have smoked everything else).

Here’s the danger: Markets get hot, then they cool off. Just because something has killed it recently, doesn’t mean it will tomorrow. See, international stocks may look boring today, but at some point, they’ll have their day in the sun again.

If you’re in tech and your portfolio’s also 80% in tech, watch out. That’s double jeopardy.

How to Avoid Recency Bias

• Stick to a plan: Diversify across sectors and the globe. Build buckets—retirement, mid-term, short-term. Use simple, low-cost mixes, not moon bets.
• Review regularly, but calmly: Don’t make wild shifts based on last quarter’s star. The US has performed really well. But just be careful not to assume history will repeat forever.
• Allow for cycles: Keep some international exposure. Don’t put all your chips on this year’s winner—next year could quickly flip the scoreboard.

Wrapping It Up

Let’s recap the five mistakes that trip up even the smartest, busiest high-income investors (and your easy fixes):

1. Overconcentration in company stock—keep it below 10-15%, set a sell rule, and diversify.
2. Chasing performance—use an Investment Policy Statement, stick to your plan, quiet your inner FOMO beast.
3. Ignoring tax efficiencies—max tax-advantaged accounts, pick efficient investments, use smart asset location to keep your IRS bill in check.
4. Not understanding fees—uncover every expense ratio, advisory fee, and platform charge. Lower costs = more in your pocket.
5. Recency bias—don’t let last year’s winner become this year’s big regret. Think cycles, not streaks.

 

Remember, smart investing favors discipline, diversity, and keeping your eye on the future. Thanks for sticking with me—now go check your portfolio, show those mistakes the door, and relax. Until next time!