Spook

7 common money moves that can bring bad luck

Unless you happen to trip over a black cat while walking under a ladder outside your financial adviser's office, nothing should really spook you about your money on Friday the 13th.
Still, it's a good time to remind yourself of money mistakes to avoid throughout the year. Successful investing and money management, after all, are not about luck.
Here are seven common and costly errors to avoid:
1. Delaying saving.
 There are lots of reasons given for putting off saving for retirement, such as low income, unemployment or paying off college loans. But anyone who waits to save misses out on the power of compounding interest over time.
For young adults, in particular, the difference can be stunning. Someone who saves $3,000 a year starting at age 25 will produce a nest egg of $777,170 by age 65. That's more than five times the $137,286 balance of someone who starts at age 45.
The calculations by Principal Financial assume an 8 percent annual return. Even if the person starting at 45 doubles the annual savings to $6,000, the total by 65 will still be just $274,572, far short of the early starter's total.
2. Letting emotions guide investing decisions.
Plenty of investors have been tempted to buy a hot stock because of the buzz it's generating, as they get swept up in the market fervor; or to sell a stock or mutual fund in fear when the market is plunging. Making emotional short-term decisions with long-term money can be disastrous, however. Investors who bought shares of high-flying Krispy Kreme Donuts saw just how quickly things can change - the stock took a free fall from nearly $50 a share in 2003 to less than $5 in less than two years. You can also ask those who bailed out of stock funds in their 401(k) after the meltdown of 2008-09, only to see the market's value double in the last two years.
Investors should make a plan and have the patience and courage to stick to it, advises Judith Ward, a senior financial planner for T. Rowe Price. "Your objective should be to achieve your goals, not outperform the market, your best friend, or your neighbor with the newest, hottest investment idea."
3. Skimping on an emergency fund.
Emergencies that prompt a quick need for cash can set back your finances for months or years if you haven't set money aside for anything from car repairs to a layoff. Build an emergency fund that can cover at least three to six months of living expenses.
First have a rough idea of what you spend in an average month. Check your records and receipts to get a handle on the total of your monthly nondiscretionary expenses - housing, food, utilities, gasoline. Now work at increasing your emergency fund to the necessary level, even if you have to temporarily divert other savings in order to do so.
4. Having an unbalanced portfolio.
Maintaining a mix of investments is critical for investors to achieve their goals. But being sufficiently diversified is harder than most think, according to Kate Warne, investment strategist for the Edward Jones investment firm in St. Louis. It involves owning a wide variety of stocks and bonds, or the proper mix of funds.
"People think if they own a couple of stocks and a couple of bonds, they're diversified," Warne says.
Many do just that. Nearly a third of Charles Schwab's two million investors hold more than 20 percent of their assets in a single stock, the brokerage says. That leaves their portfolios vulnerable to a nosedive in the stock because of a slump, scandal or even bankruptcy.
Setting and forgetting your allocations within a 401(k) plan is another risky oversight, because recent results can tilt your portfolio to be more stocks-laden, or less, than you intended. You should review your plan at least annually, rebalancing investments and increasing your savings rate if necessary.
5. Assuming that a low-priced stock is cheap.
Too many investors judge a stock's value by its price per share, says Bill Stone, chief investment strategist for PNC Wealth Management. The key is P/E - price-to-earnings ratio. The lower the P/E, the less investors are paying for every dollar of the company's profits.
"The stock price is meaningless." Stone says. It's more important for investors to think about the value of the stock in terms of how many times earnings are they paying per share.
There are ways that management can directly influence the price of a stock, such as through stock splits and reverse splits. Citigroup Inc. put a 1-for-10 reverse stock split into effect this week that boosted its stock price from $4.52 at the end of last week into the mid-$40s, but the stock's underlying value didn't change.
6. Paying avoidable or excessive fees.
If you're not careful, it's possible to rack up hundreds of dollars a year in avoidable bank, airline, credit card and other fees.
Using an out-of-network ATM is getting costlier; $5 fees may be just around the corner. Free checking is getting harder to find, as banks find ways to charge monthly maintenance fees.
Airline fees are ever-higher. Checking two bags will cost up to $60 on the biggest carriers such as American, United and US Airways, booking by phone is up to $20, and changing your ticket could set you back $150.
Then there are hotel "resort fees," gift-card activation fees and expensive rental-car insurance fees - one of the most avoidable fees of all, since most auto insurance policies and many credit cards cover your rental.
7. Getting overly conservative with investments in retirement.
Many retirees believe they should adjust their portfolios to become much more conservative when they finish working. That overlooks the fact that retirement can last for decades thanks to longer life spans and improved medical care.
It's essential to continue to seek long-term growth in retirement by investing in stocks and riskier assets than just CDs and bonds, says Patrick Egan, director of asset management marketing for Minneapolis-based Thrivent Investment Management. The aim is to protect your savings against inflation and minimize the risk of running out of money.
Financial advisers recommend planning for a retirement that could last a full 30 years or more, until age 95. That makes 65 almost the new 35, Egan suggests, when it comes to investing in stocks.

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