4 Expensive Investment Mistakes That Could Cost You in 2024
Investing in your future is one of the savviest ways to protect yourself. However, these mistakes can cost you big.
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For many adults, the importance of investing has been drilled into us. However, we often don't learn the nuances of investing, like how to avoid costly blunders. Here are some of the most common mistakes we make in an effort to make our money grow.
1. Not setting investment goals
It would be easy to blame the vast number of internet "experts" for riling people up. There are plenty of people selling harebrained theories in hopes of selling harebrained books and subscriptions. And honestly, fear sells. If someone constantly shouts in your ear you have to buy gold if you want to survive a financial meltdown, you just might believe them -- especially if you're a new investor.
Jumping on a bandwagon because you were scared into it or enticed by the belief that you're sure to get rich is a really rough way to start out as an investor. Rather than allow fear, greed, or any other strong emotion to drive you, decide in advance what you want from investing.
For example, you may say you want to buy a home one day, finance your children's education, and retire in Belize. Once you have investment goals in place, you recognize that investments are meant to be for the long term. They're not about getting rich fast.
2. Being unrealistic
The market goes through cycles. Sometimes it's up, and sometimes it's down. If, like Henny-Penny, you believe the sky is falling every time the market takes a dip, you're not only going to be miserable, but you're also likely to make irrational decisions.
Long-term investors know you must go through bear markets if you ever want to profit from bull markets. If you're tempted to sell every time your portfolio looks a little anemic, you lose all that you could potentially gain when your investments rebound.
3. Believing all advisors are the same
Working with an investment advisor is a lot like dating. You don't have to agree with one another 100%, but the basics -- like investment philosophy and personal honesty -- should align.
Unlike dating, you can actually investigate a financial broker, advisor, or firm online through sites like BrokerCheck. BrokerCheck is a free service offered by the Financial Industry Regulatory Authority (FINRA). BrokerCheck tells you instantly whether a person (or firm) is registered to sell securities, offer investment advice, or both.
BrokerCheck also provides a snapshot of a broker's employment history, investment-related licensing information, regulatory actions, and even if there have been complaints made against this person.
In short, it's like having your nosiest aunt check out a potential date before you even meet them.
4. Thinking you can time the market
The internet is rich with people claiming they can perfectly time the market. That is just malarkey. Someone may accidentally get it right once in a while, but actually attempting to determine when the market is going to rise or fall is a waste of time, even for experts.
There's no denying that the years 1993 through 2013 were financially challenging. It was during that time that the Great Recession hit, the housing bubble popped, and unemployment more than doubled. It was rough.
And yet, research shows that an investor who was out of the market during the top 10 trading days for the S&P 500 between 1993 and 2013 would have earned a 5.4% annualized return. An investor who consistently contributed to their portfolio during those tough times would have achieved an annualized return of 9.2% instead.
In other words, missing only 10 days of trading would have cost someone 3.8%. There are no guarantees in life, but study after study suggests two things: Slow and steady wins the investment race, and believing you can perfectly time the market is a fool's errand (and not the good kind of fool).
If you haven't started investing yet, don't let the fear of the unknown stop you. There are plenty of great financial advisors out there. And it's okay to start small. Begin by contributing to your employer-sponsored retirement plan or buying fractional shares (small pieces of stock) from a brokerage you recognize. Once you get your feet wet, you're likely to find that you have a knack for making money.
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