Investing is an important part of financial planning, especially when it comes to retirement. Whether you have an IRA, 401(k), mutual funds, or dabble in the stock market, you’re an investor! While it’s great that you’ve started investing (our credit counseling advice is to always start sooner rather than later), there are a few common investing mistakes to avoid. ACCC is here to explain what they are and how to avoid them.
Common Investing Mistakes to Avoid
1. Making Emotional Decisions
As an investor, you’ll have good days and bad days. One of the most common investing mistakes is making emotional rather than rational decisions with your investments. Buying and selling based on day-to-day changes in the market is not a good idea. Remember to focus on the bigger picture. Investing is for the long-term, so a bad day or even a bad month for your investments isn’t forever. The worst thing you can do is withdraw your money out of fear when the market is down and then miss out when the market goes back up.
2. Not Starting Soon Enough
If you’re in your 20s and just starting out in your career, you may be thinking that retirement is decades away, so why start planning for it now? Early on in your career is actually the perfect time to start investing for retirement. You have almost four decades before you hit retirement age, so that’s forty years in which you could be accumulating compound interest. Even if you can’t afford to invest much right now, it’s important that you put even a small percentage of your paycheck into your 401(k) if your employer offers one. Many companies also match your contribution, so if you can only afford to contribute 3% of your income to your 401(k), your employer will match that, so really you’re putting 6% in every month. It’s basically free money! Over the course of the next few decades, that money will continue growing, so start investing ASAP.
3. Not getting help if you need it
Another common investing mistake is not getting help if you need it. Investing can be complicated, and if you don’t know something, it’s best to seek the help of a financial advisor. When it comes to your financial future, you need to make sure you’re prepared and informed. If you don’t understand something, it’s better to get professional advice rather than diving in with limited knowledge.
4. Not having a diverse portfolio
Don’t put all your eggs in one basket. This means you shouldn’t focus on just one company or industry. Your stock portfolio should include all major sectors. If one industry is doing poorly, having investments in other sectors is important to balance out your portfolio. For example, during the COVID-19 pandemic, tourism and airline industries suffered due to travel restrictions. If an investor only had stocks in the airline industry, they would have lost a significant amount of money. Avoid this common investing mistake by diversifying your portfolio.
5. Being impatient
Investments are a long-term endeavor. A good investor is patient and understands that it will be years before they will see a major return on most investments. Be realistic in your expectations, keeping in mind your goals and the timeline for those goals.
Final Tips on Common Investing Mistakes to Avoid
While investments can be confusing and complicated at times, these common investing mistakes are easy to avoid. When in doubt, contact a financial advisor for help. Additionally, if you believe you have too much debt to start investing, a nonprofit credit counseling agency may be able to help. ACCC has helped thousands of clients with their debt.