It takes years to save for retirement, usually all of your working life. There's a lot of advice out there for saving for retirement, but little advice about how to keep that money that you've been saving. Not all investment decisions are smart ones, and your retirement savings can be depleted faster than you think. Bad decisions like the ones listed here are quick ways to lose your retirement savings.
The Real Estate Racket
Investing in real estate isn't a bad decision for everyone. It can be lucrative for people experienced in the real estate market and a few lucky people who just happen to have a knack for it. Be careful about investing too much of your savings in this area, though. Some people who thought they were being savvy investors have ended up declaring bankruptcy because of bad real estate investments. You should not be taking on extra debt such as extra mortgages when you're nearing retirement age. It's much too risky.
Too often, people find one area to invest in, get comfortable and never explore other types of investments. Putting all your eggs in one investment basket is never a good idea, especially if your investments are in the company you work for. You already have a lot of your financial security tied to your employer; after all, the company provides your income and benefits. Limit your investment to company owned stocks to 5-10%. Spread your investments over several different areas of concentration to limit the damage that is done if one area goes south.
Taking Too Many or Too Few Risks
Inflation is the number one risk to retirement. Your investment portfolio should be a healthy balance of stocks to account for inflation and cash and fixed income investments to provide stability. Having too much invested in volatile stocks especially as you near retirement age can cost you significant money if the stocks perform poorly. On the other hand, if your only savings is cash or other fixed income assets, you won't be able to account for inflation, which reduces your purchasing power.
Investing Short Term
Some people try to time the markets to get in when prices are low and sell at the top. It's the ideal situation, but most people are unable to make accurate predictions when it comes to buying and selling stock. Rather than trying to make a quick buck, get in for the long haul or at least long enough to take advantage of upward swings in stocks. That doesn't mean that you can buy, sell or move money to other investment areas; it just means that you need to take a long term approach when it comes to saving and investing for retirement.
If you avoid these common pitfalls, your retirement savings should be intact by the time you reach your golden years. Make smart decisions now to avoid worrying in the future. Remember to reduce your investment risks as you get closer to retirement.