It’s relatively easy to find advice on how to save for retirement. Most financial publications are filled with articles each month on how to structure your retirement savings accounts, how to understand your investing risk profile and sensitivities, and even the types of investments that may be most likely to help you reach your goals.
Unfortunately, there isn’t as much information out there on the types of things you should be avoiding. Since avoiding mistakes is in some respects just as important as doing the right thing, let’s run through some of the most common retirement investment mistakes to be aware of.
Ignoring Fees. Unfortunately, one of the most common investment mistakes is also the most damaging – ignoring the fees you pay to make certain types of investment transactions. One of the worst mistakes is paying for services that don’t provide any true value.
For example, if you tend to invest in passively managed investments such as stock or bond index funds, then you should only pay be paying management fees that are very low. Even paying an extra 0.5% or 1% per year can cost you tens or even hundreds of thousands of dollars in fees over the course of several decades. And if your custodian isn’t actually providing any services with regard to account maintenance, then you should expect to be paying low account fees as well.
Of course, you should also expect to pay more for higher value services and high reward investments like real estate of precious metals. Your discount broker simply won’t make these investments available to you, so you’ll need to go to an experienced custodian such as Quest Trust Company, in order to direct your retirement funds into these less common investment types.
Ignoring Long Term Tax Consequences. Many new retirement savers automatically choose a traditional IRA as their primary investment vehicle. After all, if the individual is eligible to make tax deductible contributions, they can cut their tax bill in the current year. But when you consider how many years those investments have to grow within an IRA, and that withdrawals from a Traditional IRA account will be taxable, it may be worth considering a Roth IRA structure instead. You won’t get the immediate year tax break, but all withdrawals from a Roth IRA will be tax-free – not just your original contribution, but also the gains you realize in your account.
Playing it Too Safe. Depending on your other retirement assets, it can be a mistake to be overly conservative with your investing choices. Life expectancies continue to inch upward, and it’s important not to outlive your resources. Being sure to include some growth-oriented investments in your portfolio.
Not Thinking Big Picture. When it comes to choosing those individual investments that you’ll make with your retirement points, you need to consider all of your other assets and investments in aggregate. Many retirement savers consider their investment diversification on an account by account basis only.
In truth, what’s more important is that you are properly diversified across your entire portfolio. This might mean that you dedicate all of the assets in a particular retirement account to a single asset or asset class when you have adequate diversification in your other accounts.