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As the New Year unfolds, it's an opportune time to reflect on our financial habits and resolve to avoid common mistakes that can hinder our financial health. In the intricate world of personal finance, it's crucial to embrace strategies that foster growth and stability. However, equally important is recognizing and steering clear of pitfalls that can derail your financial journey. Just as to-do lists can be a key part of planning, do-not-do lists can be helpful reminders to avoid mistakes that others have made. From the perils of impulse investing to the subtleties of managing risk and diversification, each point serves as a cautionary tale against common yet avoidable mistakes.
1. Impulse Investing
Avoid investing based on a whim or a tip. Avoid the temptation to follow the investment decisions of friends or colleagues without due consideration. Instead, opt for a well-considered and strategic approach to investing.
2. Lacking an Overall Plan or Strategy
Don’t look at financial decisions in isolation. Think about how they affect or are affected by other elements. For example, when deciding on your asset allocation, keep all of your investments in mind, not just those in a particular account.
3. Not Paying Yourself First
Saving should be your top priority. Put money aside with every paycheck. It's easy to do through payroll deduction or a similar automatic system.
4. Not Taking Advantage of Time
Compound growth is like a gift from Father Time. If you wait too long to save for retirement, you will have lost tremendous potential growth. As a result, you might have to save significantly more later in your career, when many financial needs compete for your attention and your budget.
5. Not Paying Attention to Risk
Risk and return tend to go hand-in-hand. Investments that offer higher potential returns, such as stocks, have elevated levels of risk. In contrast, conservative investments, such as money market accounts or stable-value investments, fluctuate very little, but they offer limited growth potential. Think about risks, as well as expected returns.
6. Not Diversifying
The more concentrated your investments, the higher the risk of a substantial loss. Manage your risk by owning a variety of investments, and don't invest too heavily in your employee's stock.¹
7. Relying on Someone Else to Handle Your Investments
It's fine to consult with someone whose opinion you respect, but be ready to question anyone's suggestions. Ultimately, you must decide for yourself on the best strategy for your situation.
8. Not Working With Your Spouse Toward the Same Goals
It's essential for couples to engage in open and regular discussions about their financial aspirations and objectives. This dialogue should extend beyond mere conversations, fostering a collaborative approach in aligning investing strategies and budgeting methods. Jointly setting short and long-term financial goals ensures both partners are working towards a common vision, reducing the potential for conflicts and misunderstandings.
9. Not Maximizing Your Retirement Plan
Your employer-sponsored retirement plan is one of your most important benefits. If you receive a matching contribution from your employer, contribute at least enough to the account to qualify for the full match. Anything less is like walking away from free money.
10. Cashing out or Borrowing From Your 401(K) Account
In a financial emergency, you might have no choice but to make an early withdrawal from your retirement account. But taking money from your retirement account is like borrowing from your future to pay for the present needs. Look for alternatives before you resort to that.
11. Ignoring Tax or Inflation When Estimating Your Net Retirement Income
For anything other than a tax-free account, such as Roth IRA or Roth 401(k), you'll owe taxes on your withdrawals. Similarly, remember that inflation will reduce your purchasing power.
12. Not Following Your Investments
Monitor your investments and make sure they are performing roughly as you expect them to do or that you are taking on the appropriate amount of risk for your age and investment profile. If they are not, try to understand why, and be ready to make changes if you need to, but don't be too reactionary and take all the information available to you to make an informed decision.
Some of this material was sourced from LPL Financial. This material is for educational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
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Bleakley Financial Group
For over 35 years, Bleakley Financial Group has been providing customized financial planning and wealth management services to a diverse array of clients across the country. Our team consists of more than 100 financial professionals, from financial advisors and research assistants to client support associates. Bleakley services over $9.4 billion in client brokerage and advisory assets across four different custodial platforms (as of 12.31.23).
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