Credit: If instead of taking an early distribution of those funds, I'd simply rolled them over into an IRA and invested it into a low-cost index fund, that $6,500 would have been worth roughly a year or more of income when I retire in a few decades.
If instead of taking an early distribution of those funds, I'd simply rolled them over into an IRA and invested it into a low-cost index fund, that $6,500 would have been worth roughly a year or more of income when I retire in a few decades.
If instead of taking an early distribution of those funds, I'd simply rolled them over into an IRA and invested it into a low-cost S&P 500 index fund, that $6,500 would have been worth roughly a year or more of income when I retire in a few decades.
Let me put it this way: I took home less than $5,000 after taxes and penalties. I couldn't tell you what I spent it on today. And while I've done a solid job putting money away over the past decade or so, and I'm definitely on track to a comfortable retirement, I'll always look back on that immature move -- one that I repeated! -- as the money mistake I wish I could take a mulligan on.
Matt Frankel : One money mistake I wish I could have a do-over on is how I handled money during college -- particularly in terms of credit cards.
In fairness, I went to college while it was still essentially legal for credit card companies to prey on college students. They would set up tables all around campus offering goodies like a free t-shirt or a pizza just for applying. The worst part was that you didn't even need to have any income or ability to repay in order to get a credit card. Well, I did have a job throughout most of my college career, but that didn't stop me from accumulating almost $10,000 in credit card debt -- a large sum of money for someone waiting tables part time.
Fortunately, the Credit CARD Act of 2009 has made it much tougher for credit card companies to recruit college-aged customers. Nowadays, prospective customers under 21 years old need to prove their income or produce a cosigner, and credit card companies are extremely limited in their ability to market to young people.
Even so, many college students have the income necessary to qualify for a credit card, and it's entirely possible to use credit cards irresponsibly at any age. I'm just glad I got my reckless financial behavior out of my system while I was young, and that the damage wasn't so severe that I couldn't recover.
Selena Maranjian: In the early 1990s, I read about one of best-performing mutual funds of 1993: Fidelity Emerging Markets (FEMKX). It had surged -- get this -- a whopping 82% in a single year. Being naive back then, I figured it must be a particularly amazing performer and, gee, even if it doesn't quite earn 82% each year, perhaps it will still deliver crazy returns regularly.
Well, after earning that 82% in 1993, the fund didn't fare quite as well. In 1994, it dropped 18%. 1995: down 3%. 1996: up 10%! 1997: down 41%. 1998: down 27%. 1999: up 70%. Had I left $1,000 invested from 1994 through 1999, I'd have ended up with about $650. The past 15 years have been a little better for the fund: It has averaged annual gains of 6.7%, slightly lagging its category, per Morningstar, but outperforming the S&P 500.
Mutual funds that do really well in one year often don't repeat that performance. There are such things as flukes or simple outliers in data sets. It's also important to understand that one unusually strong year will inflate the average annual return that a fund touts in its ads for many subsequent years. Thus, if you see a big average annual gain, it's smart to look at the gains in the individual years, to see if they were generally high, or if there was a single outlier.
An exceptionally high return isn't a bad sign, but don't let it get you overexcited. Remember to assess a fund in other ways, too, such as by checking its fees and reading its prospectus. And if you're thinking of chasing hot-performing investments and then selling them as soon as they underperform, that's a recipe for buying high and selling low -- the opposite of a sound investment strategy.
Brian Stoffel : It was 2008, my now-wife and I had just moved in together, and I wanted to start planning for a secure financial future. I hired a financial planner and told him I wanted to make sure that our retirement and any possible college education bills for our kids could be taken care of. He suggested Variable Universal Life Insurance, and I took the bait.
His argument -- which currently holds true -- was that by investing money through the life insurance policy, my wife and I would have money to contribute to our kids' college educations, and that the money wouldn't be counted against us when we filled out our FASFA forms. That sounded enticing. But I didn't check the fees or the fine print well enough.
Over the past eight years, I have paid roughly 1.5% in management for sub-optimal performance of my funds. In addition, I can't cash out the policy or borrow against it for its full cash value until 10 years has passed. While the advantage of getting to use the cash for college without listing it on the FASFA forms might be nice, we would have been far better off had we just bought term insurance and invested the rest.
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The article 1 Money Mistake I Wish I Could Take Back originally appeared on Fool.com.
Adam Galas has no position in any stocks mentioned. Brian Stoffel owns shares of Apple. Jason Hall owns shares of Apple. Matthew Frankel has no position in any stocks mentioned. Selena Maranjian owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
