More and more young people these days are seeing the benefits of investing early on in their life. And while starting a habit that leads to the growth of wealth is something that many financial experts recommend, they also warn against some common mistakes that beginner investors are prone to make.
Here, personal finance writer Jackie Lam shares her own experience with investing in her 20s and the lessons she learned from it.
Neglecting IRA Contributions
Although you’re only starting out in your career, you’re probably already thinking about your retirement plan for the future. In fact, you’ve probably opened an individual retirement account (IRA) to begin saving.
If you’ve done these things, good job! You’re on the right track.
What you need to remember now is to continue making your monthly contributions. Lam herself admittedly forgot about her IRA after she opened one at 21 and considers this to be one of her biggest financial blunders.
Since growing money in an IRA is a long-haul game, she missed out on years of growth when she neglected to make her contributions.
Prioritizing Less Important Expenses
According to Lam, one factor that contributed to her lack of consistency with contributions is that she prioritized other expenses instead. Similar to many young people, she ended up using her money to pay for clothes, vacations and going out with friends.
Now in her 30s, she’s learned to set up auto-contributions to her investment accounts each week. She also recommends the use of micro-investing platforms like Acorns that link your bank accounts and credit cards to your investment account.
An interesting feature Acorns has is its ability to take a rounded-up value from every transaction users make with their cards and automatically deposit it into their investment fund. These increments may seem small but they would add up fast over time.
Worrying About Economic Downturns
As someone who started investing during around the time of the Great Recession, Lam is no stranger to the feeling of panic seeing her investments lose their value. She actually lost a third of the savings she had in her 401(k).
Fortunately, she made the right call of keeping her money in the account instead of withdrawing it in a panic. Eventually, she recovered the original value of her 401(k) savings.
Learning from that experience, she wasn’t as upset when her retirement accounts took a huge hit once again when the coronavirus pandemic tanked the market this year.