Are you ‘Clark Smart’ when it comes to investing? If you are inadvertently making any of these investing mistakes, you might want to tweak your strategy!
Here are 9 investing pitfalls to avoid, plus ways to get you on the right track.
9 investment mistakes and how to avoid them
1. Putting money in employer stock.
SmartMoney magazine once called investing in employer stock ‘the dumbest investment move’ you can make.
Why? If you work for a company, and you invest in the stock, you are putting all your eggs in one basket. But because companies have lifecycles just like people, this isn’t the best idea. That’s why diversification is a smart move when it comes to investing.
2. Investing with a megabank.
A study from Personal Capital compared the costs of you investing your money with banks and insurance companies versus with lower-cost providers like Fidelity or Scottrade.
Their findings? The most expensive bank was Bank of America/Merrill Lynch at 4x the cost of Fidelity, Scottrade or USAA for mutual funds or ETFs.
Don’t do it! Instead, go for a low cost provider such as Fidelity, Scottrade, or Vanguard.
Read more: Why investing with a bank is a big ripoff
3. Using a full-commission stock broker.
Stockbrokers, no matter what they tell you, do not always operate in the best interest of their clients. In fact, sometimes, they operate against them!
Because they do not have what is called ‘fiduciary duty,’ full-commissioned stock brokers are not required to work in your best interest. That’s why its best to find a fee-only financial planner who does not make money on commissions and is paid to really provide you with the best advice.
4. Not considering inflation.
Inflation is one area that can be easily overlooked. But, this is also one that could surprise you down the road.
If inflation is 3%, but you’re only earning 3%, you’re netting zero. So, you’ll want to be sure to consider the costs on energy, medical care, recreation and food when planning for how much you’ll need to save for retirement and adjust where necessary.
Read more: How inflation can sabotage your budget
5. Ignoring fees.
Fees are an area of investing that can easily go by the wayside. When you’re focused on how much to invest and what to invest in, often the last thing you might think about are the fees.
But the fact of the matter is, fees can affect your retirement savings big time, costing you thousands of dollars. Be sure to know and understand exactly how much you are paying in fees, and pay the least amount possible!
6. Not saving for retirement early enough.
You might have seen the mind-blowing chart that Clark included in one of his books that showed how a teenager who started saving just $2,000 at age 15 and continued for just 7 years and then stopped would have over $1 million at retirement.
The reality is, it pays to save early, and time is your best friend if you start saving even a little bit now. Clark recommends saving a dime of every dollar you make, but if you haven’t saved anything before, start with a penny out of every dollar and work up from there.
Here are some tips to kick your retirement savings into gear!
- Easiest way to start saving for retirement when you’re saving zero
- Saving for retirement in your 30s
- Saving for retirement later in life
- How to overcome the fear of investing & start saving now
7. Not saving enough for retirement.
When it comes to how much you should save, Clark’s advice is if you save a dime of every dollar you make, you should be good to go!
But, what if you’re starting late? How can you really know what you need to save?
A study called the Trinity Study found that people could safely afford to deduct 4% of their retirement savings every year without running out of money. So if you want to figure out a good number to hit, you’ll need to figure out what your yearly retirement budget looks like (e.g. Living on $40,000 per year), and then multiply that by 25 (25x 4% = 100%) to get to your retirement number (e.g. $1,000,000).
Additionally, here’s how much you need to save to be a millionaire by age 65.
8. Not taking advantage of your employer match.
If you’re not taking advantage of your employer match, you’re leaving free money on the table!
According to a TIAA-CREF survey, 77% of employees who participate in an employer-sponsored retirement plan contribute enough to receive the full employer match, which means that 23% are throwing away free money. If you can and your employer offers it, taking full advantage of the employer match is definitely a Clark Smart move.
9. Falling for financial training or services with ‘guaranteed returns.’
Ever heard those ads on the radio or have you seen one on a website that promises you ‘guaranteed returns’ if you use their service or take advantage of their training?
There is one thing I can promise you — they’re complete bologna. There is no such thing as an investment service or stock market training course that can guarantee returns on investment; that’s the nature of investing.
If you ever hear promises like these, steer clear! If those folks could really guarantee returns, they wouldn’t be looking for other streams of income by selling to you.