Talking about investing is uncomfortable let alone admitting to our mistakes.
There are the few who do talk and write about them but often because they have a volatile history of buying and selling at the wrong times, day trading, chasing yield or that one godsend stock, gambling or being too emotional that the imminent crash is coming. Or they highlight the mistakes of the expert investors or of famous people but rarely of the ordinary investor.
Ordinary people go to work each day, contribute to their retirement plans every two weeks, rollover their past 401(k)s to IRAs and open a brokerage account to invest in Index funds and ETFs. Most of it is actually quite boring so it isn’t a topic of engaging conversion nor is it fodder for online investing content where views reign.
The reputable investing people, firms and institutions publish broad investing mistakes to appeal to a large audience and what they miss are the things we don’t even know we are doing. Because when we search for ordinary people and their investing mistakes we get a slew of articles on the top, major mistakes, the 8 mistakes that will cost you, the 3, no 5, no 6, no 13, wait no 20 most common mistakes and all of them essentially tell you the same thing.
Here is what they all miss.
Never considering that you may want to retire early or be forced to. If you only have a retirement plan that can’t be accessed without penalty before the age of 59 ½ and never opening a brokerage account to invest in Index funds and ETFs. There are other types of accounts that can be accessed besides a savings account. These include retirement plans and the “Rule of 55,” contributions to Roth IRAs and HSAs (Health Savings Accounts).
Setting up automatic transfers to a brokerage account or even a retirement account but never choosing the funds for that money to be invested in. It just sits in the account as cash maybe earning a basic savings interest rate or none at all. Almost all investing accounts have a multi-step process and the online web access to do this changes frequently.
Not having a plan of any kind is more common than actually having one. This is one of my mistakes. My husband and I had a Financial Advisor but there was no plan. It was not until I started reading and studying more about investing in my late 40’s that I realized we really had no idea of where we were at, how much more we needed or even really how much we were spending. We were just throwing darts (money) into accounts and hoping for the best.
Not realizing you need help because you don’t know what the endgame (retirement) is like because no one ever talks about it or discloses how it truly is to live off your investments. Finding a Financial Advisor/Planner for what you need is hard enough. Finding one who understands taxes or even communicates with your CPA or tax preparer is somewhat unheard of.
This is one of my biggest mistakes, not understanding investment taxes even with hiring a top 10 accounting firm to do our taxes. I also was an accountant but it in no way qualified me to attempt to do our taxes because I had only interned in college at a public accounting firm during tax season. As it turned out, we don’t qualify to use a Backdoor Roth IRA effectively because we had rolled over significant funds into regular IRAs previously. The IRS has an IRA Aggregation Rule or pro-rata rule causing most of our Roth contributions to be taxable upon withdrawal even when we paid tax on the contributions from post-tax funds. I redeemed myself by finding a very knowledgeable CPA who found this mistake and we have stopped contributing to our Roth IRAs.
The Roth IRAs are endlessly hyped before and after you retire but it doesn’t work for everyone. Find out if it really works for you in the long run by hiring the right tax and financial professionals to help you.
Never considering inflation. There will always be inflation.
You aren’t realistic with how much you spend or even want to spend in the future because that requires you to think long. Eventually, you do spend less in retirement but you need to have a real conversation on whether you will have enough or insurance for long-term care.
Forgetting to include auxiliary insurance to your medical plan like dental, vision, long-term care or even umbrella. If you have these in your employer-sponsored plan you may want these in your retirement plan especially as you age.
Thinking that you are diversified when you have 10+ investment accounts but 90% of it is in stocks/equities. More is not better and consolidation is a good thing. Real diversification is a portfolio mix of stocks, international stocks, bonds (fixed income) and cash or cash equivalents. I’m still working on this one.
Never thinking it is possible someone could die early or that you will get divorced. Both spouses need to be involved in not only the investment plan but also an estate plan with documented beneficiaries. Know where the accounts are and how to access them, meet with your financial planner, tax professional and attorney. Know who to trust and rely on for help. I still need to find an estate attorney for Illinois.
Michael Batnick wrote a book, Big Mistakes, the biggest mistakes committed by the world’s most successful investors. However, the chapter I connected with most was his own investing story. It’s important to know that even the world’s most successful investors make significant mistakes because investing is difficult. But finding ordinary people to admit their own investing mistakes and then publicly write about it in detail is extraordinarily difficult.
He writes about all the bad choices he made for reasons he still doesn’t know, failing out of college but eventually getting a degree and then teaching himself about investing to pass the CFA exam during the great financial crisis and his mother dying. He acknowledges how truly lucky he was despite his circumstances and even creating his own luck with the things he did to set his eventual investing career in motion.
It’s not about the specific mistakes we make but knowing and finding the mistakes and what we subsequently do to correct and learn from them without continually repeating or ignoring them. The internet isn’t particularly helpful with this one but if you can find someone who will talk about their investing mistakes you are one step ahead of most ordinary people.