When you make a mistake in daily life, you usually have the opportunity to immediately make things right. If you spill soda on the floor, you can mop it up. If you burn the chicken you’re roasting for dinner, you can order takeout. In the grand scheme of things, most slip-ups have temporary consequences at worst.
But when you make an investing mistake, it can haunt you for years. The money you lose from paying unnecessary fees or choosing the wrong mix of stocks could limit the potential of your portfolio, requiring you to contribute more to reach the same total. For anyone struggling to save enough already, that may not even be possible.
That’s why investors should have a general understanding of which mistakes to avoid. Here are some of the most common.
Counting the Employer Match
If you have a 401k or other employer-sponsored retirement plan, you might be eligible for an employer match. You usually have to contribute some of your own money to qualify, and employers usually match somewhere from 50 to 100 percent of what you contribute.
At my last job, my employer matched 3% of my salary if I contributed 6%. During this time, I counted my retirement contribution as 9% total, since I was putting in 6% and my employer was adding 3%.
What I forgot to calculate was the employer’s vesting schedule, which determines when the employer contributions legally become yours. My company had a five-year graded vesting schedule, so every year I earned 20% of the employer match. I stayed there for a little less than three years, which means I only earned 40% of the company match.
My mistake was in counting the 3% match as definite, forgetting about the vesting schedule entirely. If you’re investing primarily in your company’s 401k, make sure to err on the side of caution when calculating your total contribution. If you leave before you’re fully vested, you won’t have as much saved up as you thought.
Investing Too Aggressively or Too Conservatively
I graduated in the wake of the Great Recession, and I was more than a little scared to start investing. I’d seen the stock market plummet and my parent’s retirement accounts eviscerated, so it seemed pointless to throw my hard-earned money into investing. It’s not just me – most people…