When it comes to investing, many people look back and wish they would have done something differently, like not pulling their money out of the stock market when things got dicey or saving more for retirement. But sometimes taking a look at the mistakes of others can help you make more informed financial decisions.
We asked certified financial planners and advisors what their biggest investing regret is, and what mistakes they see clients making most often. Here are five things these financial professionals — and their clients — said they regret the most.
1. Not saving enough for retirement
Not saving enough for retirement is a common regret. A comfortable retirement is the dream for most Americans, but Bankrate’s 2024 Retirement Savings Survey revealed 57 percent of American workers feel behind on their retirement savings. The financial professionals we spoke to made similar observations about themselves and their clients.
“I wish I would’ve started saving at a much younger age,” says Michael Lofley, CFP, a financial advisor at HBKS Wealth. “Some of our clients have young children who are eligible for Roth contributions, and when you do the math on those contributions plus compound interest for 50 years, the numbers are staggering.”
Putting off saving for retirement can hit your golden years hard. How do you avoid that scenario? Start sooner and save diligently.
2. Not having enough Roth-based retirement money
When it comes to 401(ks) and individual retirement accounts (IRAs), there are generally two types: traditional or Roth. Each offers a different tax advantage.
Roth contributions are made with after-tax income, meaning you will not receive a tax break in the current tax year, but you won’t owe taxes on your withdrawals in retirement. Traditional contributions are made with pre-tax income, meaning you will receive a tax break, because you won’t be taxed on that income in the current year. However, you will owe taxes on your withdrawals in retirement.
Many experts prefer Roth accounts because you’ll never pay taxes on qualified withdrawals. Unfortunately, many investors regret not taking the Roth route later on.
“One of the most common things I hear clients saying is they wish they had more Roth money,” says Gerika Espinosa, CFP, AFC, a certified financial therapist at DMBA. “They don’t care about the taxes they saved yesterday. They care about reducing today’s taxes.”
In other words, investors approaching retirement wish they had more after-tax money in retirement rather than the tax break they received years ago.
3. Not investing earlier
One thread that ran through the collected responses was the regret of not investing earlier.
“I lived practically throughout my 20s without investing or saving. In other words, I spent every dollar I ever made,” says Andrew Herzog, associate wealth manager at The Watchman Group. “Therefore, I missed out on maxing my Roth IRA for five-plus years after graduating college. I wish I would’ve developed good money habits sooner.”
A common misconception, particularly among young people, is that they think they need a lot of money in order to invest, and so they wait. But most major brokerage accounts don’t have a minimum, so you can get started with very little, sometimes even $1.
You can also buy fractional shares of stocks and ETFs if you’re unable to buy a full share but still want to invest.
4. Not being tax-efficient with investments
Many investors also regret not paying special attention to the taxes they have to pay on their investments. In many cases, you can legally reduce those taxes, defer them or even eliminate them entirely.
“I’ve encountered clients who regret not taking advantage of strategies like maximizing contributions to tax-advantaged accounts or missing opportunities to minimize taxes with techniques like tax-loss harvesting, Roth IRA conversions or donating appreciated stock to charity,” says Maria Castillo Dominguez, CFP, founder of Valoria Wealth Management.
There are a few ways to become more tax efficient with your investments:
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Buy and hold investments so you don’t have to pay capital gains taxes.
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Open an IRA, which lets you put money away on a pre-tax basis.
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Contribute to a 401(k) plan, which lets you defer money from your paycheck on a pre-tax basis.
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Take advantage of tax-loss harvesting to reduce or eliminate taxable capital gains by selling investments at a loss to offset gains and lower your overall tax bill.
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Evaluate your asset allocation and rebalance your portfolio to enhance tax-efficiency.
5. Jumping out of investments when market volatility strikes
It’s a tale as old as time: The stock market experiences a rut, and you’re tempted to sell it all because you think things will only get worse from here. But long-term investors, including investing magnate Warren Buffett, recommend that you buy and hold stocks for as long as you can.
Jumping out of investments when volatility strikes is becoming more common — and to the investors’ detriment, says Steve O. Oniya, president and chartered financial consultant (CFC) at OM Investments.
How do you resist selling when the market takes a downturn? First, know that saving and investing for retirement is a long-term game. The market often experiences ups and downs over long periods, so some volatility is normal.
If you do notice that your 401(k) or other retirement accounts are losing money, consider what may be driving the loss. Are your investments concentrated in one area? Or is the market just experiencing a normal rut?
How to start investing
The hardest part is starting. If you have absolutely no idea where to begin, it may be a wise decision to speak with a financial advisor who can help you create a plan.
In general, it often pays to keep things simple and then expand your strategy as your skills develop. Consider picking a popular investment strategy that will work for you and then stick with it. For example, open a brokerage account and invest your money in an S&P 500 index fund containing America’s largest companies.
Then, hold on — for a long time. Let the power of compounding go to work. Compounding occurs when your money grows not only from what you invested initially but also from the profits as they accumulate over time. Think of it like a snowball rolling down a hill.
Bottom line
For all of the many regrets that can come with investing, most can be avoided by starting early. Investing can be intimidating, but oftentimes, the hardest part is just getting started.
Take time to consider what your long-term financial goals are and what your risk tolerance is, then open an account. Whether it’s a retirement account or a brokerage account, it usually only takes a few minutes to set up.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.