The Biggest Mistake by Young Investors

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There are a lot of investment mistakes you can make over your lifetime, but they can mostly be overlooked as they'll be balanced out by successes. However, there's one mistake common to those under the age of 40 that can ruin your financial portfolio.

There are a lot of investment mistakes you can make over your lifetime. Even the best investors make poor choices or get blindsided simply because despite speculation, no one can accurately predict the future.

However, mistakes can be overlooked as long as one hit doesn’t wipe you out. For each hit to your portfolio, you just need to balance it out with a success. Easier said than done. But there’s one particular mistake that those under the age of 40 make that they can easily avoid, according to Huffington Post’s financial planner, Neal Frankle (emphasis my own):

“There are investment blunders that actually will jeopardize your financial future. And one of the costliest mistakes you could possibly make is to expect short-term results with your long-term investments.”

What does that mean, exactly? Simply that when people don’t get the results they want, as fast as they want them, they drop the investment and move on to something else. Meanwhile, if they simply kept their money where it was, it could have grown over the years.

Frankle supposes that young investors make this mistake time and time again because they worry they haven’t saved enough for their future. They consider how much they need for retirement, and then compare it to what they actually have and get scared.

“How do they respond to this fear? Usually in one of two ways. Some get super aggressive and make very speculative investments. This usually ends up costing them big time as they suffer catastrophic investment losses sooner or later. The other (more likely) approach that younger investors make is they become super conservative. This happens because emotionally they can't tolerate any short-term risk.”

After the financial crisis in 2008, a lot of investors were worried about leaving their money or putting more money into the stock market. If they fled what they thought was a sinking ship and didn’t consider the main tenet of investing in the stock market (buy low, sell high) and that the markets would come back, then they missed out on a huge rally.

Last week, Jeff Brown, MD, wrote in his latest column that retirement saving is “all about time.” Frankle had this one last thing to say about investing:

“It's really important to get this one concept though through your head; it doesn't matter what the value of your account is this week, this month or this year. All the matters are what the values are as you tap into the account over many years.”