A surprising number of Americans have little in the way of investments and a sad number have none at all. One has to wonder how the non-investing fraction of our fellow countrymen imagine they’re going to get by in retirement. If you don’t sow, you don’t reap.
That sad fact is compounded by another and that’s the number of people who do invest, then end up shooting themselves in the financial foot. To the financially savvy there are few things more frustrating than seeing people on the right path, then suddenly veer off course and run their finances into the ground.
Thinking They Can Beat The System
Getting wealthy is like a snowball in that it starts out slowly and, for a long time, you don’t think you’re making much progress. It’s at that critical time between rolling downhill and becoming comfortable that people tend to stumble. They think they can beat the system or don’t need to report all their income. It seems ironic that the most likely time for people to think they can beat the system is after they’ve enjoyed a small measure of success using a tried and true investment strategy! There is no shortcut to riches. The only strategy that works 100% of the time is to live below your means, save money, invest wisely and do that your entire life.
Debt
The debt economy will go down as one of the great cons in all of recorded history. Convincing people that they need to borrow money for housing, transportation, even food and clothing, apparently is pretty easy. People fret over their credit score and live in a constant state of debt. It’s really quite insane. Debt adds a tax, in the form of interest, to every transaction in your life. If you start thinking of interest and fees as taxes instead of, well, interest and fees, then you can get good and riled up about them. Maybe you’ll even get stirred up enough to actually do something about it and cut debt service out of your financial life.
Not Diversifying
The most common example of this problem are people with a portfolio composed mostly of company stock. If the company does well, that’s great. If the company does badly or, like Enron, goes out of business, that can be devastating. An investment portfolio should be diversified, which means it should be spread over a wide variety of investments. A good portfolio is also diversified within asset classes, which means even your stocks and bonds are diversified.
Buying Too Much House
This is such a common killer of finances that it deserves its own category. It seems like people just can’t wait to max out their spending on a house that’s way more room than they need. Then they have to take care of that house, heat and cool all that living space and keep sinking time and money into it. All that effort for an investment that, over time, barely keeps pace with inflation. We have such poor choices for housing these days mainly because people go along with the game instead of demanding better choices and homes that are made from materials that last and require less maintenance. The crummy housing market is one of the actual few things you can legitimately blame on the government. Government backed mortgages are not available for unique types of homes or non-standard materials. You’re stuck picking between 3 bedroom, 2 bath homes made from bricks and sticks with a tarpaper roof because that’s all a government-backed mortgage will let you pick from.
There are other great investment killers but most of them fall into one of these four categories. Having a comfortable retirement can be as simple as not making these big mistakes.