As an investor, how can you avoid making mistakes? It’s not always easy, because investing can be full of pitfalls. If you know what the most common mistakes are at different stages of life, you have a better chance of avoiding these errors.
Let’s look at some investment mistakes you’ll want to avoid when you’re young, in mid-career, nearing retirement and when you’ve just retired.
When you’re young.
Mistake: Investing too conservatively (or not at all)
If you’re just entering the working world, you may not have a lot of money to invest. Don’t wait until your income grows — putting away a small amount each month can prove helpful. Don’t make the mistake of investing primarily in short-term vehicles that preserve your principal but offer little growth potential. Position your portfolio for growth. Stock prices will always fluctuate, but you have decades to overcome short-term declines. Since this money is for retirement, your focus should be on the long term — and it’s impossible to reach long-term goals with short-term, highly conservative investments.
When you’re in mid-career
Mistake: Putting insufficient funds into your retirement accounts. At this stage of your life, your earning power may have increased substantially. You should have more money available to invest for the future — you may now be able to “max out” your IRA and still boost your contributions to your employer-sponsored retirement plan. These retirement accounts offer tax advantages that you may not receive in ordinary savings and investment accounts. Try to put more money into these retirement accounts every time your salary goes up.
When you’re nearing retirement
Mistake: Not having balance in your portfolio. When within just a few years of retirement, some people go to extremes, either investing too aggressively to make up for lost time or too conservatively in an attempt to avoid potential declines. Both these strategies could be risky. As you near retirement balance your portfolio. This could mean shifting some of your investments into fixed-income vehicles to provide your current income needs while still owning stocks that provide the growth potential to help keep up with inflation in your retirement years.
When you’ve just retired
Mistake: Failing to determine an appropriate withdrawal rate. Upon reaching retirement, you need to carefully manage the money you’ve accumulated in your investment accounts. Your chief concern is outliving your money, so you’ll need to determine how much you can withdraw each year. Take into account your current age, your projected longevity, the amount you’ve saved and the estimated rate of return you’re getting from your investments. This type of calculation is complex, so you want to consult with a financial professional.
By avoiding these errors, you can ensure at each stage of your life, you’re doing what you can to keep making progress toward your financial goals.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Information provided by Karl Ritland, Edward Jones, 1100 N. Hickory Blvd., Suite 201, Pleasant Hill, 266-8188, www.edwardjones.com.