My Biggest Investing Mistake -- and How You Can Avoid It

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Putting things off can make a little difference -- or a big one. Delay filling your tires with air and your miles per gallon will take a hit. Delay starting to sock money away for retirement and your entire financial future could suffer.

That was my biggest investing mistake -- not starting to save and invest sooner. Here's a closer look at how painful an error it can be -- along with how you might avoid it.

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Investing mistakes galore

If you're going to save and invest, it's pretty much guaranteed that you'll make some mistakes. Here are common ones, many of which I've made myself:

  • Not saving aggressively enough.
  • Not investing effectively.
  • Not understanding the companies in which you invest.
  • Being impatient and selling too soon.
  • Holding too many stocks, so that each one has little influence on your portfolio.
  • Not paying attention to tax effects of investments.
  • Getting greedy and following the crowd into overvalued market darlings.
  • Being fearful and selling good investments when the overall market swoons.
  • Not taking advantage of retirement accounts such as IRAs and 401(k)s.

There are plenty of others, too.

I avoided many of the blunders for too long for a bad reason: because I wasn't investing at all.

My biggest investing mistake: starting late

When I was in my 20s, I just didn't have saving and investing for my future on my radar. I hadn't learned much about personal finance, and even though I was living below my means, I was just accumulating money in a bank account, thinking about spending much of it on a fancy stereo system. I didn't do that, though. Instead, I eventually got a wake-up call from my employer at the time. I attended an information session on retirement savings plans and began to see the power of investing. I started contributing to a 403(b) account -- much like a 401(k) account. Even later, I ran across The Motley Fool and started learning about investing in individual stocks.

My mistake could have been worse -- I could have been in my 40s or 50s when realizing the need to save and invest. If that's you, don't freak out -- all is not necessarily lost. Keep reading. You might share the same mistake as me -- starting too late -- but it doesn't have to doom you. You might still be able to avoid a bad result.

The power of investing

For best results, we should all start saving and investing for our futures as early as possible. You might even do so while you're still a teenager! Imagine, for example, that you are able to park $1,000 in a Roth IRA at age 15. Here's how that single $1,000 investment could grow over time (at an average annual rate of 8%):

That's pretty amazing, right? A single $1,000 investment can grow to almost $50,000 -- though it will take 50 years. Few of us have 50 years until we retire, so this example is limited in value -- for us. Think about it for your kids, grandkids, or future kids, though. Just socking away a little money for them now and then when they're young can result in a wonderful windfall for them in adulthood.

Catching up through compounding

If you're like millions of Americans, you probably have not socked away the money you'll need for retirement, nor are you currently on track to do so. Fortunately, most of us can invest more than a single sum of $1,000. If you're really behind the ball and hope to retire in the next decade or so, you may need to get aggressive about saving and investing. The following table shows how much you might amass if you can sock away some hefty sums regularly:

Note that you can't expect 8% annual growth if you're just using bank accounts and CDs. The stock market offers the best chance of long-term growth. You don't have to become a savvy stock picker, either. You can just opt for a low-fee broad-market index fund, such as one that tracks the S&P 500.

The big picture

Take some time to put together a retirement investing plan. Consult a financial planner if you need to, because it's so important. Consider using tax-advantaged retirement accounts such as Roth IRAs and traditional IRAs as well as Roth and traditional 401(k)s. Roth accounts offer the chance of tax-free withdrawals in retirement, which can be a big deal -- especially if you've accumulated some big bucks over a long period.

Factor Social Security income into your plan, too, as it's likely to provide a significant chunk of your retirement income. Know that the average monthly retirement benefit was recently $1,407, which amounts to nearly $17,000 per year, but if your earnings have been above average, you'll collect more than that. It will never be a princely sum, though, as the maximum monthly Social Security benefit for those retiring at their full retirement age in 2018 was just $2,788, or about $33,500 for the whole year. It's smart to look into strategies that can maximizing your Social Security income, too.

Making mistakes with our money is something just about all of us will do. But the more you learn about personal-finance topics and investing, the fewer mistakes you're likely to make -- and the more money you'll likely earn and not lose, too.

Consider sharing this article with some young people you know -- you might really help them have a strong financial start in life.

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