Don’t make these frightening financial mistakes
Vail, CO, Colorado
It’s Halloween again. Of course, you’re doubtless more amused than frightened by the variety of ghouls, ghosts and goblins you’ll see running around this week.
However, although Halloween itself may not be particularly alarming, you can find some things in life that are truly scary, such as making bad investment moves.
Here are a few alarming errors to avoid:
Investing too little in your 401(k): If you have a 401(k) or similar employer-sponsored plan, you owe it to yourself to take full advantage of it. Your contributions are generally made with pre-tax dollars, so the more you put in each year, the lower your taxable income. Furthermore, you may have a dozen or more investment options within your 401(k), so you can spread your dollars around in a way that reflects your risk tolerance and retirement goals. At the very least, contribute enough to earn your employer’s match, if one is offered.
Ignoring your IRA: Even if you have a 401(k), you can still open an IRA. Many people do this – but then forget about it. For 2007, you can put $4,000 into an IRA, or $5,000 if you’re 50 or older. A traditional IRA offers the potential for tax-free earnings, while a Roth IRA can grow tax-free, provided you’ve had your account for at least five years and don’t take withdrawals until you are at least 591⁄2.
Participate in The Longevity Project
The Longevity Project is an annual campaign to help educate readers about what it takes to live a long, fulfilling life in our valley. This year Kevin shares his story of hope and celebration of life with his presentation Cracked, Not Broken as we explore the critical and relevant topic of mental health.
Investing too conservatively: Many investors are so uncomfortable with the volatility of the stock market that they put much of their money in more “conservative” investments, such as Treasury bills, corporate bonds and certificates of deposit.
It’s true that these types of securities will, in general, offer more protection of principal than stocks, but they will not provide much growth potential.
Over the long term, only stocks have significantly outpaced the rate of inflation, although, as you no doubt have heard, past performance is not an indication of future results.
Chasing “hot” stocks: If you follow a tip on a “hot” stock, you could get burned. Why? For one thing, by the time you buy the stock, it may already be cooling down. Even more importantly, it simply may not be appropriate for your individual risk tolerance and long-term goals.
“Timing” the market: If you could always “buy low and sell high,” you’d unquestionably make a fortune as an investor. Unfortunately, no one can really predict when market highs and lows will occur ” and you can rack up a lot of expenses buying and selling your investments in a vain attempt to “time” the market.
You’re much better off by buying quality investments and holding them, at least until your needs change.
There’s no trick to avoiding all these investment mistakes ” if you do, you may just find your investment statement is not so spooky to read.
Charlie Wick, Tina DeWitt, and Todd DeJong are financial advisors with Edward Jones Investments. They can be reached in Eagle at 328-4959, in Edwards at 926-1728 and in Avon at 845-1025.