[00:01] you will encounter on your path to building wealth and how to avoid them starting with number one, overconcentration. This is also known as holding too much in one asset and is typically defined as when you have a
[00:13] single stock or an investment in your portfolio that makes up more than 10% of your overall holdings. So, if your portfolio is worth $100,000 and you have $50,000 in Google stock, that might not be the best idea. When this happens, you
[00:26] being correct, which is that a lot of your financial future is going to depend on how well Google stock is performing. If you'd like a cautionary tale as to too heavily in one single asset or stock, consider the tech company Intel.
[00:41] during the dot com bubble that peaked around $65 a share. Now, if you had chart that's on the screen, you would still not have broken through its all-time highs back in 2000, even with the recent run-up Intel has had with the
[00:56] AI news. Compare that to the performance of the S&P 500 since 2000, which has 5x since then. So, what we are basically looking in our portfolios is a consistent gain over time and overconcentrating can actually be a big
[01:10] those consistent gains, you could also get emotionally attached to that single holding and that's the opposite of rational objective investing. Most advisers like to see no single stock exceed 5 to 10% of your total portfolio.
[01:25] if you're too overconcentrated. That's a trap on how to invest your money, but number two today is lifestyle creep. This is one of the most common traps that's when your expenses increase alongside your income. All right, take a
[01:41] know it's going to be a little bit crazy. These are the percentages of living paycheck-to-paycheck. You can see that someone making less than $50,000 per year, 57% of those people say that they are living paycheck-to-paycheck.
[01:55] But what is crazier to look at is the higher income ranges. 41% of people making over $300,000 a year say they live paycheck-to-paycheck and people making over $500,000, so that's half a million dollars a year by the way, 40%
[02:08] living paycheck-to-paycheck, which should be really alarming to you. The true way to build wealth is by keeping your lifestyle cheap and modest while actually one of the lessons of the book The Millionaire Next Door. The author
[02:21] studied in that book hundreds of millionaires in the '90s and found that their spending habits the same while their income grew at a rapid pace. I with possessions, you may lose sight of what's actually important in life and
[02:36] that's why I think true fulfillment can often come from meaningful experiences you focus on experiences like going to new places, learning new skills, or simply spending quality time with your loved ones, you will create lasting
[02:49] memories and personal growth that in my opinion, no items can provide. So, you're going to start to make more money and you might be tempted to show off that money via your lifestyle. But for your own sake, just try not to get
[03:02] today is being tax inefficient. So, I know taxes are probably the last thing you want to hear about today, but taxes are likely your single largest expense. more than anything else that you spend money on. You want to be strategic about
[03:16] seriously just leaving a bunch of money on the table. The most common mistakes I see are people not taking advantage of tax loss harvesting, holding investments underestimating how much a capital gains tax bill will actually cost them when
[03:30] investments in the wrong accounts, something I see quite often is that people put their high dividend stocks in a taxable brokerage account instead of a tax sheltered account like a Roth IRA or an IRA. When you do the former, you
[03:43] time you receive them and that is something that's just inefficient. There reduce your tax liability. So, for example, maxing out your 401k, your IRA, or even your HSA. If you are holding stocks, you might want to consider
[03:58] qualify for long-term capital gains rates. And lastly, learn about tax loss harvesting because strategically selling your positions that have losses in order reduce your tax bill quite a bit, especially at the end of the year. The
[04:12] IRS will always take a cut of taxes and your job is to make sure that you're not Speaking of not paying more than you should, the same logic will apply to your debts because trap number four today is being lazy about refinancing
[04:25] money. If you have a mortgage, the in your mortgage rate is where refinancing really starts to make a lot of sense. Let's say you have a $400,000 mortgage on a $500,000 home and your
[04:38] current mortgage rate is 7%. If you were to refinance to 6%, your payment goes from 2661 per month at the previous rate to 2398 per month and that's about a per month savings that you're going to get. Now, typically refinancing does
[04:53] cost some money, so usually runs about 2 to 3% of your total loan. So, on $400,000, that could be anywhere from 8 to $12,000 that you might be paying in let's say the fee to refinance is
[05:06] $10,000. To break even on those fees, the savings that you get every single month, you need about 38 months to recoup the cost. So, really then, the key question becomes, how long do you plan to stay in your home? If this is
[05:18] your forever home or you want to stay in the home for at least 5 to 7 years, a 1% drop in your rate can make a lot of sense. If you're moving in the next year sense to refinance at all. This trap I think is relevant to anyone carrying a
[05:31] high interest rate, whether that's your mortgage or your auto loan. If you locked in a mortgage or loan during 2023 or 2024 when rates were at their numbers right now. If you're looking to compare some mortgage offers, I will
[05:44] description to a tool from bankrate.com that's completely free that you can try compare and see what today's market looks like. Now, trap number five is about money at all. It's about something that you can never get back and that is
[05:59] financial traps people fall into when they're building their net worth is that they work too much. This is a financial trap, but also just a general trap for as your net worth grows, your time starts to become exponentially more
[06:14] valuable than your labor. So, I'm going to give you a very extreme example here illustrate the point of the value of your time. Let's say you have 5 million bucks in a portfolio and you get a conservative 5% return per year. That's
[06:28] per year your money is making. That's $684 a day just from your portfolio. So, at what point does an extra hour of work start to have diminishing returns doing for you? That's what you should constantly be asking yourself. What I've
[06:43] successful in their careers, well, they sometimes are workaholics. Even though live a fulfilling life, they already have enough money to perhaps retire too much. In fact, one of the top regrets of people on their deathbeds is
[06:58] that they worked too much throughout life and didn't get to enjoy it. So, I and you're establishing yourself, but if you're constantly growing your net worth and your portfolio is growing and your income is growing too, maybe just audit
[07:10] how much you're working. The last thing I would want to see you do is work 80 you're the age of 65. Trap number six today is overconfidence from early success. Now, if you are someone who finds themselves quite successful,
[07:23] especially early on in life, this trap is for you, which is that you could become so overconfident from your early success that it could actually sabotage analogy here, but I had a friend who liked to diversify his portfolio into 10
[07:37] stocks at all times and that was his entire portfolio, just 10 stocks. That today, which was overconcentration, but what he was going for. He wanted high risk, high reward. Now, this strategy
[07:50] admittedly worked quite well for him in 2023 and 2024 when he picked 10 stocks all of them were winners, but let's say he picked eight great ones and two bad well. So, after this happened, he suddenly had this bravado about him that
[08:05] greatest investor of all time. So, what did he do? Unfortunately, this person doubled down and they started to take bigger and bigger risks. Those 10 stocks that he had in his portfolio, he decided to concentrate even further and just go
[08:18] down to five stocks. He would even buy call options on earnings dates and trade on margin from time to time and I recently heard from this said friend and he is down over 30% in his portfolio this year alone when the S&P 500 is only
[08:32] truth here is that sometimes a make you a great investor. It just might mean you got lucky in a bull market. The unchecked, the more painful the corrections might be. Statistically, 90
[08:47] to 95% of day traders lose money over a long period of time. So, I would say if just don't. Let's move on to trap number seven and that is when your finances growing your net worth and earning a good income, you may start to diversify
[09:01] investments into many different places. People will have multiple brokerage investments, private investments, and they might even enter into real estate partnerships. According to this article from DIY Investor, he says, quote,
[09:14] "While more than 82% of high earners say they feel confident making investment decisions involving six-figure sums, nearly a third of those admitted that they have just pretended to understand a major investment decision despite not
[09:26] fully grasping what they were dealing with." One of the key people interviewed in this is a CEO of a wealth platform in the UK called Sidekick and he states that when portfolios tend to reach a certain size, all of a sudden,
[09:38] structure, risk, and fees matter much, much more. The trap here is that this financial complexity in your portfolio will create blind spots. So, the more it is to miss a hidden fee, misunderstand a risk, or just make a
[09:51] actionable advice that I have for you in this section. I would just say that if growing to a point where it's getting a little complex, maybe that is when you consult with them for any next steps. Trap number eight today is being too
[10:06] illiquid, or what a lot of people like to call being asset rich but cash poor. This is when the majority of your wealth is being tied up by things that you have your entire net worth in your house. On paper, you might look really
[10:20] a new opportunity, it's not like you can liquidate your house in the next 7 days. According to Ben Carlson from Ritholtz Wealth Management, he says that quote, "Today's millionaires rarely have anywhere near a million dollars to spend
[10:33] millionaires, households with a net worth between one to two million dollars, the vast majority of that wealth is illiquid. They typically had wealth is illiquid. They typically had 66% of their wealth tied up to a primary
[10:45] home and retirement accounts in 2023." The general rule of thumb is to keep 3 liquid cash at all time, and I would even argue that if you're someone who's high income and low expenses, that perhaps having a little bit more cash
[10:59] flow or cash on hand is a nice thing to have in case opportunities come up for into an asset that ties up your money, you want to think about how long that you're okay with it being tied up for a certain period of time, then I think
[11:13] that's fine. The mistake I think people make more often is that they commit actually need in the future, and then they find themselves completely screwed when that happens. That's the trap that we want to avoid. Trap number nine today
[11:25] is delaying saving for retirement, and this comes down to the fact that I think that everyone is a little bit lazy and likes to procrastinate, especially deep factors in how much you retire with is not actually how much money you earn,
[11:38] it's how early you can start. So, this is one of the most powerful graphs in benefit of saving early. Now, here's what happens if you save a thousand dollars per year and earn a 7% annual return on that money starting at either
[11:51] the age of 25 here in the blue line or at the age of 35. Now, on our channel, than a thousand dollars per year, but just to illustrate how big of a can see that the person who starts at the age of 35, they essentially end up
[12:06] started at 25 ends up with. If you do have a little bit of a late start, I think that's still okay because the best time to invest was probably yesterday, but the next best time is right now, today. Here's a really nice summary on
[12:19] it. So, number one, save more. Number two, stay out of debt. Number three, live within your means. And number four, I think that if you can do number four, you are well on your way, it's to save at least half of every raise that you
[12:33] a hundred K to a hundred and ten thousand dollars per year, you want to put at least half of that ten thousand dollar raise towards retirement. That's future, and that's an easy rule to live by for any future raises as well. Trap
[12:47] number ten, and the one I want to leave you with today is being underinsured. If you're likely on your path to building wealth, but one of the ways that you can keep that wealth is by making sure that you don't lose it in the first place. As
[13:00] needs are going to grow with it, so your home is going to be worth more, and you have more assets that can be targeted in a lawsuit or a robbery. When it comes to revisiting what the stated value of your assets are with your insurer. That way,
[13:13] insurance you qualify for in case something were to ever happen. I podcast that he does his insurance check-in every Valentine's Day, which I thought was a great idea. Not that it's the most romantic thing, but the logic
[13:27] taking care of the people that you love. So, what better reminder to make sure protected than to talk to your insurance provider on February 14th. I mean, it is on February 14th, but I just thought that that's Graham's version of love,
[13:42] just a really good reminder to stay covered and to make sure that your stuff is actually worth. All right, if you enjoyed this video, you'll probably enjoy my video on every way to build your net worth in 2026. I'm going to
[13:55] know in the comments what the biggest financial trap you have fallen for And I will see you guys in that video right up here or a future one on the channel. All right, thank you for being here. Peace.