If you're watching this right now, that means that you're probably interested in investing. But investing can feel complicated and just really intimidating, even if you've been doing it for years. So, to help you get started on your investing journey, here are the top five investing mistakes you're going to want to avoid.
Mistake #1 Forgetting to invest your money.
Now I know you're probably thinking, "How is that even possible?" But it actually happens more than you would think. Whether you're investing on your own, in something like an IRA, an individual retirement account, or in your work retirement plan, there is one crucial step that you can forget.
Investing in your retirement plan has two steps. Step one is getting that money into the plan, but often new investors skip step two, which is actually purchasing the investments with the money you put into your retirement account. I get that this might sound a little confusing, but I want you to think about it like this: your retirement account is kind of like a bank account that holds not only cash, but also your investments. You know, things like stocks and bonds. But you have to actively select what you want your money invested in. If you don't, all that money that you've been contributing just sits in the account, and you'll be missing out on the whole reason why you decided to invest. So, make sure you go double check those retirement accounts and make sure you're invested.
Mistake #2 Investing in just a handful of companies.
It may sound like a really great idea to invest all of your money in a few companies that you really like - I mean what could go wrong, right? You just take that money and you throw it into these companies that you think are doing a great job. But, in any situation where you want to invest your money - whether that's putting it in the stock market or opening up a new business - there's always going to be some level of risk involved. And just because a company is doing well right now doesn't mean that they're going to be continuing to be profitable forever.
I'm sure investing all of your money in Blockbuster or Borders bookstore or Circuit City seemed like a great idea at the time, but if you had invested all of your retirement savings into those companies you'd be left in a really difficult position. The way you can avoid some of this risk is by spreading your money across many different investments, not just a few. And you can do that using something like an index fund.
Index funds take your money and they just spread it across hundreds, or even thousands, of different companies. And, yes, some of those companies still might perform poorly, or even go out of business, but those losses are going to be offset by the countless other stocks that you're invested in.
Investing mistake #3 Avoid constantly watching your investments.
It makes sense that you'd want to keep an eye on how your retirement savings are doing. I mean, it's just a natural thing. I'd want to know if I was losing or making money, too, but here's the thing: the more you go and check in on your investments, the more likely you are to just mess things up. And what I mean by that is you're more likely to go in there and just try to buy and sell and do whatever you can in your mind, at least, to avoid losing money. But the thing is, we are very prone to making highly-emotional decisions when it comes to our money. We just can't help it. And the stock market is a very volatile place. Prices are constantly going up and then they're going down, and if you're watching this movement on a daily basis, you might be tempted to do what you can to stop any losses you're seeing. However, chances are you're only going to make things worse.
Numerous studies have shown that those who take a 'set it and forget it' approach to investing have a much better outcome compared to those who try and predict the best time to buy and sell their stocks and bonds. So, know that it's okay to check in on your retirement accounts a few times a year, but don't make it a daily or a weekly habit.
Mistake #4 Ignoring your retirement plan match.
If you're fortunate enough to work at a company that provides some type of retirement plan - maybe a 401k, for example - chances are that they might also offer matching contributions. This is when a company provides you as an employee just free money for participating in your retirement plan. You typically have to do something on your end in order to receive this, like putting in a certain amount of money.
Some examples would be: you receive one dollar from your company for every dollar that you put in up to five percent of your overall salary; or maybe your company might give you 50 cents for every dollar that you contribute, up to the annual contribution limit. No matter what type of matching program your company offers, it's almost always an amazing idea to take advantage of it. So, going to work check with your HR department and see how much you need to contribute in order to receive all of that free money your company's just handing out.
Mistake #5 Waiting to invest.Time really is your best friend when it comes to investing. The longer you can give yourself to let your money sit there and grow, the better off you're going to be when it comes to retirement. I think sometimes it's easy to say, you know, "I'll just wait until I have more money to invest." But you don't need to be making hundreds of thousands of dollars to become an investor, and you don't need to invest thousands of dollars at a time. You can invest with just a few dollars every single paycheck. The important thing is you want to build up that habit, and you want to start early. And, as you get more comfortable with this process, you can slowly increase those contributions. The best time for you to start investing was yesterday, but the next best time is today - so get out there start investing and grow your wealth.