3 Investing Mistakes Millennials Make

by Miranda Marquit · 7 comments


We all make mistakes. It’s true when it comes to managing money or managing relationships.

But avoiding investing mistakes early in life can give us a huge leg up in life. We are better off in the long run if we start early and invest often. Yet, many millennials aren’t moving forward with investing like they should be. Here are three investing mistakes many of us make but should avoid:

1. Prioritizing Student Loan Repayment Over Retirement Savings

You probably think you need to get rid of that student loan debt ASAP. And you’re right. You should work on getting rid of student loan debt. However, you don’t want to put your retirement at risk to do it.

If you have the chance to sock money away in a retirement account, especially if your employer offers a matching contribution, it makes sense to take advantage of the opportunity.

Your student loan interest is likely tax-deductible, so it’s not as expensive as you think. Yes, keep paying down those debts, but also consider putting some money toward retirement.

2. Keeping Too Much in Cash

When you save, do you focus more on cash than long-term stock investments? If so, you might be setting yourself for retirement failure.

The truth is that the returns you see with cash savings are often too small to build long-term wealth. You need to add stock investments to the mix if you hope to make serious headway and build your nest egg.

You can consider using index funds if you are worried about stocks. That way, you don’t have to try to pick the “right” stocks. Instead, with index funds, you have a chance to capitalize on how well the entire market does in the long run. This reduces your risk to some degree, while still allowing you the potential gains that can help you reach your retirement goals.

3. Not Paying Attention to Tax Implications

Your investments come with tax implications. When you contribute to a retirement account, you need to decide whether it makes sense to claim a tax deduction now by putting more money into the 401k or traditional IRA. Alternatively, you can choose to pay taxes today and withdraw your money without paying taxes later by contributing to a Roth IRA.

Considering these options when you set up your retirement accounts is important, because the difference a few percentage makes over the long haul can make a dramatic difference in how much of a retirement cushion you can built in a few decades time.

On top of that, you also need to think about the tax consequences of buying and selling your investments in taxable accounts. If you sell your stocks within a certain time period, say within a year for stocks, you might have a higher tax on the gains. Also, don’t forget that you can make moves to harvest investment losses on your taxes.

There is quite a bit to consider. That’s why it can make sense to talk to a tax professional or financial planner who can help you run the numbers and see what makes sense. You want to run the numbers and think about taxes before making big changes to your investment plan. Just make sure you find a professional who is competent and can point out the pros and cons of multiple strategies.

In the end, investing is one of the best ways to build wealth. The good news is that you’re still young enough that most of your mistakes can be fixed over time. You have to start though. Don’t make the mistake of sitting out because time in the market is the key to growing wealth.

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{ read the comments below or add one }

  • It’s definitely difficult for millennials to commit to investing vs. holding cash in a savings account (even when those savings accounts earn FAR less than 1% interest). It’s a big step to take but definitely one with a big pay off when you think about long term implications as opposed to simply short term losses. As millennials, often with few $s out of college, any short term losses are magnified while long term gains feel so far away it sways us to keep $ in the bank earning near zero in interest.

  • #2 is huge. It seems a lot of millennials are afraid of investing (likely because they don’t understand) so they tend to hold their money in cash instead. Horrible mistake. Hopefully we can all work together to help people change that habit, and others. 🙂

    • Two Donte says:

      Millennials are afraid to invest because they are afraid to lose their hard earned money.

      I can’t imagine one day i have $50,000 in stocks and the next day I have less than $500.

      Americans not just millennial should have enough liquid asset just in case something happens and you need the cash to pay your rent, insurance, food, transportation, etc.

      • David Ning says:

        Stock valuations are definitely volatile, but you wouldn’t get $50,000 to $500 swings if you bet on the broad economy via investing in index funds.

        If you haven’t started, then I urge you to start studying about investing in an index such as the S&P 500 or better yet, a total market fund like the Vanguard Total Stock Market Fund. It’s not foolproof but it’s a pretty solid long term bet.

  • Stephen says:

    Oh so you’ll cover my loses if I go all in in the stock market now at historic high? Hummm good to know

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