Putting off investing until later in life

Heap of one hundred dollar bills close upFotograFFF/ShutterstockWhy it’s a mistake: People who start to invest earlier in life are not only taking proactive steps toward a stable future, but also cashing in on time, which is investing’s best friend, says Nick Holeman, a certified financial planner at Betterment, an online financial advisory firm. “The younger you start investing, the more you can reap the benefits of compounding and long-term market gains,” he says.

What to do instead: If you’ve missed the boat on early-in-life investing, don’t stress. Instead, start by paying off any outstanding high-interest debts, such as credit card debt. “Then, work out how much you can afford to invest,” Holeman says. “This will differ depending on your age and salary, but what is important is that you get in the game. Trim the fat from your budget wherever possible, decide what you can spare, then set up auto-deposit to start building your portfolio.” Try these genius money-saving tips from self-made millionaires.

Assuming you need a lot of money to invest

Close up shot of a cheque or cheque with a penhfng/ShutterstockWhy it’s a mistake: If you don’t feel like you’re flush enough to invest your money, you’re ultimately losing in the long run, says Steve Dorval, head of digital advice at saving and investing app Twine. “In reality, how often do we receive large sums of money at once? Relying on a yearly tax return, holiday bonus, or birthday gift to reach financial goals will delay crossing the finish the line,” he says.

What to do instead: Save in smaller, consistent amounts—it’s more successful and far more predictable. Remember: A lot of companies will let you get started with as little as $50, Dorval adds. Get the ball rolling with these 56 money-saving tips you can use today.

Putting all your eggs in one stock basket

Close-up of a credit cardMinerva Studio/ShutterstockWhy it’s a mistake: When your portfolio lacks diversification, there is more exposure to any one specific risk and the volatility that comes with inevitable market ups and downs, Holeman says.

What to do instead: Diversify your portfolio with a mix of stocks and bonds, and include international stocks to benefit from growth overseas. “You can also sign up for an online investing platform,” Holeman says. “It will automatically diversify risk in your portfolios on a number of levels, including currency, interest rates, credit risk, monetary policy, and economic growth.” Don’t miss these other 19 personal finance tips you were never taught—but need to know.

Watching investments too closely

Close-up detail on a United States quarter dollar coin - In God we Trust - Liberty.Steve Allen/ShutterstockWhy it’s a mistake: While you want to be aware of how things are going, don’t check your account daily, Dorval says.

What to do instead: Make your money work for you over time. “Betting on long-term growth with more volatile investment portfolios can help you rake in more money for those things later down the road,” Dorval says. “Time is your friend. Let it work for you.”

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Forgetting to research your financial planner

Close up button calculator , calculator on table SANOOK NUK/ShutterstockWhy it’s a mistake: Picking a financial planner without doing your due diligence can hit you in the wallet because you may not know this person’s skill set, and you might not be aware of fees that could be involved with every trade, says certified financial planner Levi Sanchez, co-founder of Millennial Wealth, a firm that specializes in helping young professionals plan for their future.

What to do instead: Look for two things. One: Is he or she competent? To know for sure, look for certified financial planner (CFP) professionals, as they’re required to pass an extensive exam covering various financial topics, plus meet continuing education requirements. Two: Find a financial planner who is legally obligated to work in your best interest. “Fee-only advisers don’t sell financial products, and by not doing so, eliminate many of the conflicts of interest that arise when giving financial advice,” Sanchez says.

Stock-searching with your emotions

mrfiza/ShutterstockWhy it’s a mistake: One of the worst things for first-time or early-stage investors to do is to vote with their emotions, says Neil St. Clair, president of investment education platform Karma. “Ultimately they’ll see a slight downturn in the market or see a stock has underperformed for a little while against benchmark,” he says, “and they leap from that start or their entire portfolio just in time for the other stock to see a correction, and they experience a double down.”

What to do instead: Go with your convictions, and keep a medium- or long-term mindset. “In other words, if the stock goes below X number, I will sell,” he says. “Also, just like a gambler, if you are up, know when to take chips off the table.” Take St. Clair’s father, for example. “He held on to Facebook stock for emotional seasons for far too long,” St. Clair says. “He experienced a great upside, but over the last few months, Facebook has experienced some rough roads. He is holding on to the stock for emotional reasons, but remember: Past performance is no indication of future results.” Don’t miss the 13 retirement facts you need to take seriously.

Failing to ask how much trades will cost

Jeff Lueders/ShutterstockWhy it’s a mistake: Affiliation with a broker-dealer (and revive fees for certain trades) affects a financial adviser’s objectivity when guiding you on where to invest.

What to do instead: Always ask what the total cost of a trade will be, says St. Clair. “A major-broker dealer may be selling you stocks or mutual funds where they’re getting a commission or an additional fee, and you may not be aware of it,” he says. The practice is legal, so be direct. “Say to your broker, ‘I want to see clearly what the full cost of our relationship is and how much money you’re making off this relationship,'” St. Clair says. Here are 23 other secrets your financial adviser won’t tell you.

Staying in the dark on tax implications

Close-up of a $ banknotesLotus_studio/ShutterstockWhy it’s a mistake: First-timers may do short-term buying and selling of stocks or funds, hoping to make quick gains on one asset and then moving on to the next, says Adam Jusko, founder and CEO of Proud Money. “But these short-term gains are taxed as income at your regular tax rate, as opposed to long-term investments held over a year, which are taxed at a capital gains rate that is 10 percent to 20 percent lower,” he says. “You’d have to be an investing genius to overcome that difference, and first-time investors are not.”

What to do instead: Don’t try to time the market for short-term gains. “Find stocks, mutual funds, or ETFs that you believe will grow in value over the long term, and hold them for at least a year (but probably longer),” Jusko says. “Your assets are likely to perform better anyway, and you’ll get the tax benefit to boot.”

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Not taking advantage of retirement vehicles

Marcio Jose Bastos Silva/ShutterstockWhy it’s a mistake: Retirement vehicles like 401(k) plans and IRAs are set up to give you huge tax advantages by letting your money grow tax-free, even if buying and selling is done within them before retirement, Jusko says. “In addition, many employers will match part of the employee’s retirement fund contribution,” he says. “This is perhaps the only guaranteed return you can get on any investment anywhere.”

What to do instead: Find out if your company has a retirement plan and contribute the maximum amount to it, if possible. “If you don’t have that option, fund an IRA (Individual Retirement Account) on your own,” Jusko says. “Start with a Roth IRA if your income isn’t too high (for 2018, under $135,000 if single or $199,000 if married), or choose a traditional IRA. If you’re self-employed, you have another, similar option: the SEP IRA. You can open an IRA via financial companies such as Vanguard, Fidelity, and many others.”

Buying individual stocks

Investor stock market stock chart data feed,financial fraud investigation, audit and Technical analysis price action for copy space and object minimal conceptcherry7966/ShutterstockWhy it’s a mistake: Buying individual stocks as a first-time investor is almost always a mistake. “Because most first-time investors will be starting out with smaller amounts of little money, they will only be able to buy a small amount of stock in each company, and will be able to buy very little of each one,” Jusko says. “Having few stocks means the performance is likely to fluctuate wildly, which most new investors find hard to stomach. They are likely to sell the stocks if they go down, meaning they’ll lose a big chunk of their investment, plus have to pay transaction fees on both the buying and selling end of the deal.”

What to do instead: Choosing a mutual fund or exchange-trade fund (ETF) that allows you to get diversification even without large sums of money is almost always a better option, Jusko says. Don’t miss these tips from 11 people who retired early.

Being too risk-averse

Close-up view on US dollars.atdr/ShutterstockWhy it’s a mistake: “Safe” investments may have little risk of going down in value, but they also have little hope of going up significantly, Jusko says. “While it’s good to preserve capital, your money needs to grow at least enough to outpace inflation. Otherwise, you’ll have effectively lost money, even if the amount of money you have is more than when you started.”

What to do instead: Put more of your investment dollars in the stock market. “Keep the higher percentage in stocks versus bonds or other fixed-income assets,” Jusko adds. “Most experts believe a good formula to decide how much of your portfolio should be in the stock market is to subtract your age from the number 110. Whatever is left is the percentage that should be in stocks.” For example, a 30-year-old should have 80 percent in stocks. If that formula feels too risky, use 100 as your starting number instead. In that case, a 30-year-old would instead have 70 percent in stocks. Before you shell out, read these 17 things you need to know before investing in stocks.



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