Investing 2024: Some People Are Making a Big Mistake, Experts Warn

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Financial resolutions are an annual end-of-year ritual, but for many people, investing won’t play a role in their 2024 New Year’s money vows.

A new GOBankingRates survey of more than 1,000 adults found that more than one in four Americans aren’t planning to put their money to work in the coming year. The experts think sitting on the sidelines when it comes to investing could lead to missed wealth-building opportunities for many. However, others might be wise to sit the year out. Let’s explore.

Most People Will Invest in Stocks, 401(k)s or Nothing at All

The largest percentage, about one in three respondents, will focus on the most familiar and accessible investment — stocks. A similar share, roughly 30%, plan to concentrate on their retirement funds like IRAs and 401(k)s. The next-largest group, around 24%, will take advantage of today’s elevated interest rates by growing their cash in high-yield savings accounts.

Next are the 18% who plan to try their luck on the crypto market, followed by 16% who will stick with real estate and another 16% who will put their money in mutual funds and EFTs. About 14% will seek higher savings yields in the form of CDs, while 9% will invest in bonds. Another 9% will dabble in collectibles like sports cards and memorabilia.

But a full 28% of our survey respondents don’t plan on investing at all. So, are the 28% who plan to observe from a distance guarding their money wisely, or are they missing out on its wealth-building potential?

You Can Never Regain a Year Without Compounding

Small investments become big investments through the power of compounding, which builds today’s gains on top of yesterday’s, and tomorrow’s on top of today’s. It’s a financial snowball effect that requires slow and steady rolling — and a year off is a year that your snowball sits idle.

“Not investing in 2024 is likely to be a huge mistake in the long run,” said Melissa Jean-Baptiste, financial educator and author of “So This Is Why I’m Broke: Money Lessons on Financial Literacy, Passive Income, and Generational Wealth.” “Investing is a long-term game, and though the returns over the next 12 months may or may not be impressive, choosing to sit out of investing for the year puts you at risk of not being able to retire comfortably in the future. The beauty of investing long-term is compound interest. Compound interest can only work its magic if you are in the market.”

Forget a Year — Missing Just a Few Good Days Can Sink You

A year without compounding can set you back. But it’s not 365 random days you have to worry about. The real danger is that you might miss a handful of great days — or even just one.

“Studies have shown that missing the market’s 10 best days can significantly reduce your portfolio’s total returns over time,” said Matt Miczulski, personal finance expert with Finder. “Taking a year off from the market, then, can be detrimental to your wealth-building potential.”

The “best days” philosophy is why experts advise keeping your money invested for the long term instead of trying to time the market, a strategy with virtually no chance of sustained success. In the words of Putnam Investments, “Time, not timing, is the best way to capitalize on stock market gains.”

$19,215 Lost to 10 Missed Trading Sessions

If you had invested $10,000 in the S&P 500 at the end of 2007 and held your position through the end of 2022, you would have earned 8.81% annualized returns, more than tripling your money to $35,461.

But if you missed just the 10 best-performing days among the 5,475 days in that 15-year span, your annualized earnings would fall to just 3.1%. That would leave you with only $16,246 — less than half of what the buy-and-hold investor earned. Missing the 20 best days would leave you with just $9,748 — a loss of $252 on a five-figure investment over a decade and a half.

If you jump in and out of the market in 2024 while trying to time its ups and downs, you run the risk of missing some of the year’s crucial best days. If you sit the year out altogether, you’re guaranteed to miss them all.

On the Other Hand, 5.5% Plus FDIC Insurance Is Pretty Sweet

Baruch Silvermann, financial expert and CEO of The Smart Investor, agrees philosophically with both Jean-Baptiste and Miczulski. “In my view, investing is a great way to grow your wealth by making money from the money you already have. If you stay out of the market for a long time, you might miss out on many opportunities to increase your wealth.”

That said, stocks aren’t the only game in town, and while hypothetical 8.8% annualized returns are good, guaranteed returns of 5.5% might be even better — particularly when your principal gets the benefit of FDIC insurance. In short, the 24% who plan to bank their bucks might be the wisest of the bunch.

“During times when interest rates are high, taking a break from the market and putting your money into high-yield savings accounts or CDs isn’t a bad idea,” said Silvermann. “While it might not be the most strategic approach, it can still earn you a decent interest on your savings, much better than if you had done it a few years ago.”

In a Few Cases, It Makes Sense To Put Investing on Hold

The previous examples that encourage investing in the new year all presume sound financial health. For some people, though, buying shares of a REIT or an ETF would be putting the cart before the horse.

“Deciding not to invest in 2024 isn’t necessarily a mistake, as it depends on personal circumstances and financial goals,” said Stephen Clark, founder of development finance firm Finbri.

For example, most experts recommend building an emergency fund before investing your money because, without one, you could be forced to exit your investments at a loss to cover something like unexpected home or car repairs. “Others might prioritize debt repayment,” said Clark.

Fidelity Investments suggests paying down any debt with an interest rate of over 6% before you invest, which includes all credit card debt. The idea is that investors with balanced portfolios can reasonably expect returns of 6%. If you’re paying more than that in interest, you’re losing money to finance charges despite your investments earning a satisfactory return.

In summary, it makes sense for long-term investors to put or keep their money in play in 2024 — except for when it doesn’t.

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