In order for you to have a successful retirement, you need to avoid making the following mistakes:
- Emotion. Do not make your financial decisions based on how you feel. Feelings are great for expressing emotion, but are a disaster in financial planning. Giving into fear or conversely, greed will destroy your retirement fund. When you are investing you are in it for the long haul. It is not a sprint; it is a marathon. One of the worst things you can do is to panic when the market takes a downturn. During your panic, you make the decision to pull out of your investments and put your money into a “safe” instrument. This is just plain dumb. Why is it dumb, because the market will go down and it will go up. In February 2009, the Dow Jones Industrial Average, which measures the growth of the stock market based on the stock prices of 30 major companies, dropped to 7,889.79. However, by February 2010, it had rebounded to 11,295.83! As of yesterday, 6/24/16, the market index is at 17,400. If you had panicked and cashed out of your investments in February 2009, you would have missed out on their recovery and future growth. This is the reason that you never, ever make any investing decisions when you’re scared. Ride the wave, the stock market wave.
- Diversity. This is a a financial term that basically tells you to not put all of your money in one stock. Putting all of your money into one stock exposes you to a huge risk. Back in the 1990’s, there was a company called Enron. At it’s peak, it was worth about $70 billion. However, 2001 rolled around and that same company went bankrupt. The investors who had all of their money in Enron lost everything. Solomon, the wisest king ever, wrote in Ecclesiastes 11:2 – “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” This is diversification and more importantly it it Biblical. So how do you achieve diversification? Think mutual funds. These are like an investing buffet. They offer you a variety of stocks, aggressive growth, small‑cap and overseas stocks, that are bundled together and sold as a unit. Mutual funds can minimize your risk and give you the best chance to grow your money over the long haul, depending on the stocks within the fund. Also, consider opening an account at motifinvesting.com.
- Don’t be stingy. When you are debt-free, you can start really investing towards your retirement. You do this by investing at least 15% of your income. Don’t be stingy with this money; it is for you, not anyone else. Remember, that If you’re just getting started and are unable to invest 15%, then at least invest enough to take advantage of your company’s matching program. Otherwise, you are robbing yourself of free money!
- My paycheck is too small. This is a lie. It trips up many young professionals and even older people. I don’t want you to think that investing is impossible when you’re just starting out and get your first “real” job. You are never too young to start investing! In fact, the younger you start, the more you will save because of compound interest and time. This is the financial advantage of youth. Don’t wait to invest. A little something is better than nothing!
- Taking out loans from your investments. This is a big NO! The temptation is great to use that money to buy a car, pay off a house, or take care of a major emergency, as your investments grow. Don’t do it; don’t do it. CNBC reports that of the money invested into 401(k) plans in 2012–2013, about 24% was withdrawn for non‑retirement purposes. This is dumb, dumb, dumb. You are destroying your financial nest egg when you borrow from that account. By leaving the investments alone, they will grow with compound interest over time. However, when you take money out, you’re stealing from your own future! Also, as you pay back that “loan,” you’re buying those shares at the current market price. The price will likely be higher than when you sold them! So not only did you lose out on the interest these investments earned, but now you have to pay more for the same investments. According to Fidelity in 2014, 50% of people who took out a loan against a 401(k), later on took out additional loans. To make matters worse, 24% of the borrowers lowered their savings rate and some stopped saving altogether. They destroyed their retirement. I don’t want you do be one of these casualties. Be wise and prudent with your retirement future.