If investing your hard-earned money into the stock market makes you cringe, you are not alone. A study from George Washington University that 49% of men reported feeling comfortable making investment decisions compared to only 34% of women.
When I polled my most recent investing class, the top reason learners cited is feeling afraid to lose money.
Here are five common financial mistakes that I’ve seen many women commit while building investments in attempt to conserve cash, that in reality can lose more money in the long-run.
Mistake 1: Spread Thin Across Accounts and Obligations
According to an October 2023 study of women by Fidelity, 27% of women don’t invest for retirement because they don’t feel like they make enough money. You may relate to this challenge (even if you are making a six-figure salary) if your money is scattered across various accounts and obligations. This lack of financial organization can be overwhelming, contributing to the feeling that there’s no money left to invest.
Rather than have multiple investing accounts, I recommend for women to pick a particular type of investing account and focus on maximizing up to the IRS limit before moving onto the next account, prioritizing retirement accounts over taxable accounts.
In 2024, employees can contribute up to $23,000 into their 401(k), 403(b), most 457 plans or the Thrift Savings Plan for federal employees. Individuals can contribute up to $7,000 in an individual retirement account, and those over the age of 50 can contribute even more.
By prioritizing retirement accounts, you not only potentially save thousands of dollars in unnecessary taxes, you build the habit of long-term investing versus the temptation to day-trade in a brokerage account.
Mistake 2: Lack of Clarity About Net Worth
Understanding both your net worth and self-worth is pivotal for informed investment decisions. I recently had a learner ask me about the best place to invest, but when I asked them what their net worth was, they did not know. Incomplete information can lead to poor decision-making, and knowing your net worth is critical to understanding how much risk you can afford to take in investing decisions.
A person with a million dollars in net worth has a different set of investment options than a person with $100,000 of net worth. More importantly, many women are not aware of what it takes to become an accredited investor, even when they’ve already met the criteria — losing out on investment opportunities that are higher risk, but also higher reward, and not available to the general public.
Before you make any investing decision in 2024, I recommend keeping track of your net worth in an automated software tool. Review your net worth each month to learn how much you can truly afford to invest.
Mistake 3: Playing Not to Lose Instead of Playing to Win
Even though I personally crossed over the threshold of being an accredited investor, I often find myself playing it safe, fearing change, and avoiding risks. I recently introduced this concept of playing to win instead of playing to not lose. That might sound like the same thing, but symptoms of playing to not lose look like:
- holding onto more cash than is necessary for an emergency fund
- not paying off credit card debt even though you have enough cash to cover it
- listening to beginner investing advice, even though you’ve been investing for years
- not trying new investment strategies, even though you can afford to take some risk
With interest rates staying relatively high compared to past years, if you’re not emotionally ready to invest, you can still make low-risk returns in saving vehicles such as:
- high-yield savings accounts;
- money market accounts;
- treasury bills;
- I-bonds; and
- certificates of deposit.
This year provides a unique opportunity for women to be rewarded for saving if investing feels too risky right now.
Mistake 4: Falling Prey to Analysis Paralysis
Women managing numerous roles and responsibilities at home and at work confide in me that analysis paralysis is a challenge to investing. Acknowledging the overwhelming number of daily decisions women face and the impact this has on financial choices is severely underestimated. Emotional well-being is also often ignored by traditional financial advice that focuses on the math alone.
You don’t need to wait until you’re 100% percent confident in making an investment decision. There is really no investment that you can find that is 100% guaranteed to make money, especially not in the short-term. But you do increase your odds in making money the longer you stay invested.
If you feel stuck in taking action, try dollar cost averaging every month for the next year and don’t pressure yourself to stick to it for the rest of your life. Dollar cost averaging simply means instead of buying shares at a single price point, you buy in smaller amounts at regular intervals, regardless of price.
For example, you can choose to buy $100 worth of stock on the first of every month and just let it sit for all of 2024. The value in dollar cost averaging is training you take action and turn investing into a habit instead of an intellectual and emotional exercise.
I share these mistakes with you because I’ve personally made each one of them, and was still able to invest enough to retire early. Accepting that making mistakes is part of the investment journey, and learning to move past them can make thousands of dollars of difference in your nest egg for the future.
