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4 big mistakes that will devastate your finances

Coming up with the perfect investing strategy can take a lifetime of effort and discipline. Unfortunately, all that hard work can go down the drain with just a few lapses in judgment.

That’s why it’s essential to make sure you not only have an overall investing plan to follow but also include rules that help you stick with that plan through thick and thin. That way, it’ll be easier for you to avoid making the common mistakes that can turn a successful, secure retirement into a financial nightmare.

Mistake 1: Putting off saving.
Young adults face more challenges than ever. With student loans imposing a larger burden on graduates’ finances than in a long time and good jobs hard to come by, just digging your way out of debt is a tough assignment — let alone starting to save.

But by making an effort to put at least some money aside for long-term financial goals, you put time on your side. Consider: Every dollar you set aside at age 25 will give you twice the nest egg in retirement as a dollar saved at age 35, assuming a 7% annual return. Invest smarter, and it’ll make an even bigger difference. So do whatever you can to get started early and not procrastinate.

Mistake 2: Blowing your best chances.
Savers are reluctant to put money into superannuation because they don’t like locking their money up. But the tax savings from these accounts can make a huge difference — especially for late starters.

Mistake 3: Dumping stocks on dips.

Once you have investment gains, kneejerk responses are hard to avoid. But they’re often exactly the wrong move.

Back in 2008, I made a big mistake by selling shares of Starbucks (Nasdaq: SBUX) to harvest tax losses. I convinced myself that in a new era of austerity, the days of the $4 latte were numbered. Trends like McDonald’s (NYSE: MCD) bargain-priced cafe drinks seemed like obvious winners in a more budget-conscious world, and I assumed their success would come at Starbucks’ expense. Yet even though McDonald’s did indeed thrive, plenty of people kept spending their money at Starbucks — and the stock rose sixfold as a result.

Every day, the stock market gives you chances to leap before you look. Occasionally, your emotional response will turn out to be right — but often, you’ll regret that gut-driven move in the long run.

Mistake 4: Riding your losers
Related to the last point, it’s always tempting to try to hold on to a losing stock in the hopes that it will rebound. But if a stock keeps grinding lower day after day, month after month, it can crush your spirit and eventually leave you wanting to sell at any cost. In those cases, you’re better off getting out early.

Learn from your mistakes
No matter how hard you try, you won’t always avoid mistakes. The key, though, is to recognize when you’ve made a mistake and to minimize its impact on your portfolio. If you can do that, you’ll have come a long way toward creating the perfect investing strategy.

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A version of this article, written by Dan Caplinger, originally appeared on fool.com

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