The Motley Fool details four big mistakes that could devastate your finances.
Four big mistakes that will devastate your finances.
Coming up with the perfect investing strategy can take a lifetime of effort and discipline. Unfortunately, all that hard work can go down the drain with just a few lapses in judgment.
That’s why it’s essential to make sure you not only have an overall investing plan to follow but also include rules that help you stick with that plan through thick and thin. That way, it’ll be easier for you to avoid making the common mistakes that can turn a successful, secure retirement into a financial nightmare.
Young adults face more challenges than ever. With student loans imposing a larger burden on graduates’ finances than ever before and good jobs hard to come by, just digging your way out of debt is a tough assignment — let alone starting to save. But by making an effort to put at least some money aside for long-term financial goals you put time on your side. Consider: Every dollar you set aside at age 25 will give you twice the nest egg in retirement as a dollar saved at age 35, assuming a 7% annual return. Invest smarter, and it’ll make an even bigger difference. So do whatever you can to get started early and not procrastinate.
Savers are reluctant to put money into IRAs and 401(k) retirement accounts because they don’t like locking their money up. But the tax savings from these accounts can make a huge difference — especially for late starters. Catch-up provisions for those age 50 or older let you save $5,500 more in a 401(k) and $1,000 more in an IRA, letting you set aside as much as $28,500 in tax-favored retirement accounts in the years immediately before your retirement. That’s a great way to make the most of your top-earning years while not giving up all of your savings to Uncle Sam and the IRS.
Once you have investment gains, knee-jerk responses are hard to avoid. But they’re often exactly the wrong move. Back in 2008, I made a big mistake by selling shares of Starbucks (SBUX) to harvest tax losses. I convinced myself that in a new era of austerity, the days of the $4 latte were numbered. Trends like Green Mountain’s (GMCR) single-serve coffee and McDonald’s (MCD) bargain-priced cafe drinks seemed like obvious winners in a more budget-conscious world, and I assumed their success would come at Starbucks’ expense. Yet even though Green Mountain and McDonald’s did indeed thrive, plenty of people kept spending their money at Starbucks — and the stock rose sixfold as a result. Every day, the stock market gives you chances to leap before you look. Occasionally, your emotional response will turn out to be right — but often, you’ll regret that gut-driven move in the long run.
Related to the last point, it’s always tempting to try to hold on to a losing stock in the hopes that it will rebound. But if a stock keeps grinding lower day after day, month after month, it can crush your spirit and eventually leave you wanting to sell at any cost. In those cases, you’re better off getting out early.Chesapeake Energy (CHK) provides a couple of useful points. Many have argued that natural gas prices can’t drop forever — yet even at decade lows, there’s more room for further declines if the supply-and-demand imbalance continues. That has hurt Chesapeake, both operationally and through the ongoing financial problems of CEO Aubrey McClendon, whose interests in Chesapeake wells have now raised new concerns about conflicts of interest in the executive suite. At this point, even if natural gas bounces back, you might profit more from lower-cost producer Ultra Petroleum (UPL) than with controversy-ridden Chesapeake.
No matter how hard you try, you won’t always avoid mistakes. The key, though, is to recognize when you’ve made a mistake and to minimize its impact on your portfolio. If you can do that, you’ll have come a long way toward creating the perfect investing strategy.
Reprinted with permission from The Motley Fool. TD Ameritrade and The Motley Fool are separate and unaffiliated and each is not responsible for the other’s content.
Make an appointment for a free investment consultation. Visit our branch locator to find your nearby branch. Or call 800-669-3900.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
TD Ameritrade is separate from and not affiliated with The Motley Fool, and is not responsible for their content, services, or policies.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.