Investing is a critical part of building wealth and achieving your financial goals, but that doesn’t mean it’s easy. There are plenty of mistakes you can make along the way that could derail your progress and keep you from achieving your goals, such as retirement.
(If you’re just starting out, a financial advisor can help you define those goals and create a plan to stay on track.)
Forty percent of millennial workers think they’ll need more than $1 million to retire comfortably, according to Bankrate’s 2024 Retirement Savings Survey. Becoming a millionaire through investing is certainly an achievable goal, but you’ll want to avoid these seven investing mistakes if you’re going to make it.
Mistake No. 1: Waiting to start investing
Waiting to start investing can be tempting, but you’ll be much better off if you can find a way to get started early. A big part of successful investing is the amount of time you have for your money to compound and grow. The money you save when you’re young has more time to grow.
A $1,000 investment that grows at 8 percent annually for 30 years will grow to about $10,063. If that same investment has just 10 more years to grow and compounds for 40 years, you’ll end up with about $21,725.
How to avoid it: Start saving and investing as soon as you can, even if you’re only able to invest small amounts. Early career savings will pay off when it comes time to retire.
Mistake No. 2: Failing to get a matching retirement contribution from your employer
Many employers offer a matching contribution on money that you contribute to a retirement account such as a 401(k). This is some of the easiest money you can make, because your contribution, in many cases, earns an immediate 100 percent return in the form of the employer match. This is why many financial advisors refer to this as “free money.” Failing to take advantage of an employer match is a big mistake that should be avoided.
How to avoid it: Make sure you’re contributing at least enough money to your retirement plan to receive the full employer matching contribution.
Mistake No. 3: Not taking advantage of traditional and Roth IRAs
Saving through an employer-sponsored retirement plan is great, but you can boost your savings even more by also contributing to a traditional or Roth IRA. If you meet the income requirements, you can contribute a total of $7,000 to an IRA in 2024 and 2025, while those aged 50 and older can contribute an additional $1,000.
Contributing to a traditional IRA may get you a tax break, but you’ll pay taxes once you start making withdrawals during retirement. Roth IRA contributions are made with after-tax dollars, but you won’t pay taxes on withdrawals during retirement.
How to avoid it: Contribute to a traditional or Roth IRA in addition to your workplace retirement plan.
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Mistake No. 4: Trading frequently
One mistake that many investors make, regardless of experience level, is trading too much in their brokerage or retirement accounts. Trading can be entertaining, but it also generates fees and taxes as you realize gains (or losses). You’re also not likely to outperform index funds that track broad market indexes such as the S&P 500. If you do want to trade, it’s best to set aside a small portion of your overall portfolio for trading and keep the majority of it invested for the long term.
How to avoid it: Focus the majority of your investments in low-cost index funds.
Mistake No. 5: Straying from your long-term plan
There can be a lot of noise and distractions in the investing world. Just when you think you have your long-term plan and are ready to follow it, here comes the rise of AI, cryptocurrencies and more to distract you. But successful investing involves staying the course and not getting sidetracked by every new thing that garners attention.
Meeting with a financial advisor can be a way to help keep you on track, and they can help adjust your plan, if necessary.
How to avoid it: Know why your long-term plan makes sense for you, and regularly meet with a financial advisor to discuss any changes to the plan.
Mistake No. 6: Making emotional investing decisions
In a long investing life, there will be times when you may feel scared or anxious about the markets. Stocks are volatile and can sometimes fall sharply with no warning. This can, understandably, make people uncomfortable as they watch their portfolios shrink in value. But making investment decisions based on emotions is usually a bad idea and can cause you to sell (or buy) at the worst times.
How to avoid it: Try to make investment decisions with a calm, rational mind and consider speaking with a financial advisor to ensure you’re making the best decision for your needs.
Mistake No. 7: Having unreasonable expectations
Investing is a great way to build wealth over time, but it won’t make you rich overnight. Building wealth through investing is about consistently investing your savings and letting the money grow and compound over decades. Over the long term, stocks have returned about 10 percent annually, so if you’re expecting much more than that, you could end up being disappointed. Having the right expectations can help you stick to your plan and make it more likely that you’ll reach your goals.
How to avoid it: Make sure your return assumptions are supported by evidence and history, and you’re not expecting abnormal returns in order to achieve your goals.
Bottom line
Investing is an important part of any financial plan and can help you achieve your financial goals. But there are mistakes to watch out for that could trip you up on your investing journey. Financial advisors can help you develop a plan and stick to it, even when it’s not easy. Bankrate’s financial advisor matching tool can help you find an advisor in your area.
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