If there is one area of personal finances that people struggle with the most, it is investing. While no one expects everyone to be expert stock traders, you do expect them to at least think about retirement. Many stats have shown that most families are under-prepared when it comes to retirement.
I have started to think that it’s not all their fault. Most people don’t know how to invest because no one has taught them how to invest their money. Without anyone to show them how and where to open a brokerage account, where to start trading, and the different retirement funds available to them, how much can you expect?
Learning to invest is a difficult challenge, but you have to start somewhere. In order to teach you about investing, I thought I would cover some of the most common mistakes of investing.
Not Thinking About Retirement
Have you heard of the saying, “Out of sight, out of mind?” This applies for investing as well. Too many young professionals do not think about saving for their retirement and are under-prepared when they get to retirement age. While it may be possible to live off one’s governmental programs alone, it may mean a lot of lifestyle sacrifices.
Not Investing Early Enough
Another major mistake that people make when it comes to investing in the stock market is not beginning early enough. With every year that young people delay, the less they will have in retirement. While it may not seem like a big deal, a 25 year old individual who contributes $5,000 each year until they retire at age 70 will have $342,000 more money than if he/she had started just 5 years later making the same annual contributions (assuming an 8% annual interest rate).
Not Using Employer Retirement Fund
Another blunder that people make is not enrolling in their employer’s retirement fund. Many prefer to have more cash in their pockets now and dismiss the opportunity to receive matching retirement funds from their employer. Missing out on an opportunity to put money in a 401(k) or 403(b) account and have it matched by your employer is a great way to set yourself up for hardship in retirement.
Only Using Employer Retirement Fund
Yet, some do have it together when it comes to investing, or so they think. Many young adults think that the only retirement money they need is a 401(k). While this may give you some spending money in retirement, your investments will unlikely be able to keep up with inflation and increasing costs of health care. An experienced investor knows that they need more money invested than the minimum amount in their 401(k). There are several other retirement vehicles available that are tax deferred, like a Roth IRA that will allow your money to grow much faster. Faster growth = more savings in retirement.
While it may seem overwhelming for you to start thinking about retirement, but it is important to start investing as early as possible. You may make mistakes along the way, but as long as you are being active in your investment strategy, you can learn from your mistakes and move forward.