- Not getting started early. At an oft-quoted 7% annual return, your money will double roughly every 10 years. That means that your money will quadruple in twenty years, or increase 8- and 16-fold over 30 and 40 years. If you are saving for retirement at 65, putting money away at age 25 is twice as effective as waiting until age 35 and four times as effective as waiting until 45!
- Getting into high fee products. Fees take a haircut right off the top of your accounts. So-called "Loads" on some mutual funds may take around 5.5% of your initial investment - which needs 6% returns to recover! Variable annuities and riders on them also rob your account and performance. Surrender charges of up to 10% keep you locked into restrictive products for up to 10 years and annual fees easily top 2% for even the most basic line. With fee only advisors, discount brokers and services like Betterment, there is no need to pay much at all to get your investments on track.
- Not understanding debts. Debt is a double edged sword - it can be incredibly useful and sometimes the only way to afford something, but the extra cost of interest can sometimes become a unsustainable burden on its own. Keep your eye on interest rates - a 4-5% mortgage is some of the cheapest money available and it may not be worth it to pay off if your extra cash could be be earning more invested elsewhere. Introductory credit card rates may be attractive, but if they are hiding a high regular rate, make sure that balance is low as possible before interest kicks in.
While you may learn from making financial mistakes - they are much better avoided completely. A little time with a calculator and a knowledgabe financial advisor can show you how much these mistakes could end up costing you. It's better to see the risk of a hypothetical mistake before you actually make it!
