Top 8 Mistakes People Who DIY Their Investments Make

  1. Start investing without a plan. Smart, goals-based investing starts with the question: What is this money for?
  2. 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.
  3. 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.
  4. 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%!
  5. 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.
  6. Buying individual stocks instead of funds. Individual stock trades do not create a diversified portfolio and are riskier than investing in funds.
  7. 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.
  8. 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.

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