Suze Orman: 4 Terrible Ways To Invest Your Money
Written by
Adam Palasciano
Edited by
Cory Dudak
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Historically, investing your money in the stock market is one of the best ways to grow your wealth. However, not every investment or investment strategy is the smartest way to significantly grow your wealth.
Financial guru Suze Orman explained to CNBC several terrible strategies to invest your money:
Leaning Too Heavily on Bonds
Bonds tend to be secure, conservative investments with modest yields. However, too much investment risk aversion can prevent you from a “lifetime opportunity” in the stock market. Ultimately, you’ll need to tolerate the market’s twists and turns to see major gains.
Not Diversifying Your Holdings Enough
Portfolio diversification is key to protecting yourself against market downturns and fluctuations. Investing in just a few stocks, ETFs or mutual funds is risky. If they lose half their value, you’ll lose 50% of your money. However, if your money is spread across 20 investments that are each in different sectors of the economy, for example, you’ll likely be protected against a 50% downturn.
Not Investing in Downturns
It’s best practice to invest using dollar-cost-averaging (investing a consistent amount of money at consistent intervals). However, jumping into an investment with a long-term track record of success while it’s down isn’t a bad idea, either. Just be sure not to only invest when a stock is down.
Not Taking Advantage of a Roth IRA
A Roth IRA is one of the best investment vehicles to take advantage of tax-free growth for your retirement. The key difference between a traditional 401(k) and a Roth IRA is that your contributions are from income that’s already taxed. So, once you’re age 59½, all withdrawals including your gains are 100% tax-free, as long as you’ve held your Roth IRA account for at least 5 years.
It’s important to note that if you take the money out before age 59½, you’ll owe tax on any gains, plus a 10% penalty.
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