People are often encouraged by financial experts to turn to investing as a means to achieve their goals and grow their wealth. However, it’s also important to emphasize the many risks that come with the activity.
For example, investing mistakes often lead people to lose some money and in worst-case scenarios, lose their entire life savings. To avoid that, beware of these common investing pitfalls and how to recover from them.
Not Taking Advantage of Time
Investing early in life is particularly beneficial because of a concept called compound interest. Put in simple words, this means that interest is building on interest, according to E-Trade’s Mike Loewengart.
Decades worth of compound interest easily piles up giving people their money’s worth on the resources they put in a savings account or invest in bonds.
Being Too Conservative
There are many ways to minimize the risks of investing but being overly conservative is not one of them. In fact, Loewengart says that it even adds unintended risk for investors.
Financial experts urge people to not shy away from investing in equities to help their money outpace inflation over time. Loewengart also recommends investors, especially those that belong to the millennial and Gen Z generations, to not pull out their investments during the current status of the market.
Just as in life, investors shouldn’t put all their eggs in one basket. Putting money towards a variety of financial instruments would ensure that one’s investments wouldn’t be completely wiped out in the event of a crisis.
People are recommended to only put funds into tax-deferred options. Paying taxes now while building one’s retirement savings in a Roth IRA would mean that all the growth they’ll enjoy in the future would be tax-free.
One mistake that new investors often make is that they don’t factor in the extra costs when investing their money. As some may not know, one would need to pay fees when they buy or sell investments and for simply owning these.
For example, one might pay somewhere around $467 annually for a $103,700 portfolio.
Attempting to Time the Market
A lot of investors often cash out when the market hits a downturn to avoid further decreasing the value of their money. While this may be a wise decision at the moment, some people don’t know when to get back in again and miss the gains they can get when the market bounces back.