Common Retirement Investing Mistakes that You Should Be Avoiding

• Author: Jeffrey Simmons
• Posted: 2024-07-24

Many people saving for retirement leave money on the table. Even small mistakes when investing for retirement can cost you more in the future thanks to the power of compounding. In other words, missing out on a dollar today can cost you $10 in the future. Therefore, it is better sit down today to catch even the small mistakes right now, so you can still earn money for your financial future. With that in mind, here are the top retirement mistakes that can cost you precious money.

Do Not Stay Too Heavily in Bonds

The biggest error that you can make is not paying attention to your investment allocation. Most employer retirement savings plans will automatically sweep your money into the most conservative bond fund if you do not do anything else. Of course, this means that you miss out on the earnings that you could make from the stock market. Being in bonds is one thing when you want to be cautious in a rough market environment. However, under normal circumstances, it means that you are not taking advantage of the power of the markets. Make sure that you have made investment selections for your retirement account. If not, you will not be invested enough.

Even if you have made investment selections, being overly cautious will also cost you. In most market environments, experts will advise you to have no less than 50% of your holdings in stocks. This can range up to 80%, depending on your risk tolerance. In saving for retirement, being too risk averse can keep you from being able to retire on time. Retirement investing necessarily involves some risk since it is about growing your money instead of preserving it.

Keep Track of All Your Retirement Accounts

Another mistake that people make is losing track of some of their old retirement accounts. When people leave jobs, they may not know how to take their retirement money with them. The money that you have put away belongs to you. Moreover, if you have vested in your 401(k), the company contribution is yours as well. When you do not take your 401(k) with you, it is a lost opportunity to change investment allocations as you see fit. You may also run the risk of simply losing the account because you forget about it. There are tens of billions of dollars sitting in orphaned 401(k) accounts waiting for their owners to claim them.

Not Knowing Investment Costs

Investment costs take a much bigger bite than you think out of your retirement assets. Even if the fees do not seem large right now, the power of compounding means that fees today could cost you thousands of dollars in the future. This is not to say that all retirement account fees are bad. Some funds can deliver stellar performance and cost you are few basis points more than others. However, you should closely scrutinize the fees that you pay on all of your funds to see if they are worth it. At the very minimum, you should learn all about your expected retirement costs.

Waiting Too Long to Start Investing

Starting to save and invest for retirement in your 20s can make the difference in whether and when you can retire. This is true, even if you start by putting away a few hundred dollars at a time. Hypothetically, if you start retirement investing at the age of 29 and earn an average of 8% each year, every dollar that you put away today will grow to $22 by the time you reach age 65. The tax advantages and the power of compounding are simply too much to forsake. Even waiting an extra ten years to start retirement saving can put a serious crimp in your plans.

Don't Swing for the Fences

While we said above that you need to take some risk in your retirement investing, taking too much can devastate your retirement goals. If you are investing in an IRA and have control over your own investments, try to avoid putting your eggs in riskier baskets. Steady wins the race when it comes to your retirement investing. Every time you swing for the fences, you risk losing your entire investment. That will set your retirement plan back for years because you never get an opportunity to re-save what you lost.