- Start investing without a plan. Smart, goals-based investing starts with the question: What is this money for?
- Fund a traditional IRA when they have a 401(k) through work they’re participating in. People don’t realize that if they contribute to a 401(k), a contribution to a traditional IRA is often not tax-deductible, and adds a layer of complexity if mixing pre-tax and non-qualifying contributions. I’ll spare you the details, but it gets messy fast.
- Fund a Roth IRA when they’re over the income limits. Yes, Roth IRAs have income limits associated with them. Some people contribute not realizing that, get a nasty warning from the IRS and then must pay a penalty in addition to withdrawing the funds.
- Invest too aggressively for their time frame. We often see clients coming to us with investments they intend to use in the near term invested 100% in stocks, which gets ugly when the markets are down like they have been this year. You want your down payment to be there when you need it, not down 20%!
- Trading in brokerage accounts without understanding the tax implications. Trading in a brokerage or taxable account gets complicated. There are different tax rates for investments held under a year vs. over a year. There are taxes on growth and strategies for losses.
- Buying individual stocks instead of funds. Individual stock trades do not create a diversified portfolio and are riskier than investing in funds.
- Holding a concentrated portfolio instead of a diversified one. Many clients only hold U.S. based investments or worse, U.S. large company investments, or even worse, a single stock in high concentration because of stock options, an inheritance or a gift instead of what they should be invested in: a well diversified global portfolio.
- Try to implement complex financial strategies on their own. We’ve seen it all. If you’re doing a Roth conversion or Backdoor Roth IRA, don’t go it alone! It can and does go terribly wrong.
What is Girl Math?
September 18, 2023