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Published: Nov 03, 2022 7 min read

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Illustration of a bird cage, held by a frame shaped like a face profile, with the door open letting money fly out
Kiersten Essenpreis for Money

Everyone makes mistakes, but some mistakes are more expensive than others.

And there’s one common investing boo-boo that can cost you big time. In a recent TikTok that has amassed around two million views, user @kaylacaneat says she learned about this blunder the hard way.

“Want to hear something that will make you feel better about yourself?” she asks in the video. “I invested in a Roth IRA for over two years, every single month, and it took me dating someone in finance to realize that I had never invested anything, I had just deposited money. I never bought a single stock."

The TikTok user says she thought the investing part was "automatic," and her comments section is filled with people who say they made the same mistake.

They're certainly not alone. Some investors just contribute and don't invest, sometimes for decades, missing out on potentially big gains, according to Anjali Jariwala, founder of financial planning firm FIT Advisors in Redondo Beach, California.

“I have seen it on more occasions than I would like," Jariwala says.

A common investing mistake

Roth IRAs are individual retirement accounts that investors can contribute after-tax money to, so their money can grow and be withdrawn tax-free once they turn 59.5 years old (so long as the account has been open for at least five years). Like any investment account, the longer your balance has to grow, the better.

You can contribute up to $6,000 after-tax dollars annually in a Roth IRA ($6,500 as of next year) if you're younger than age 50, and then choose your investments, which can include funds — like exchange-traded funds (ETFs) and mutual funds — stocks, bonds and more. (If you're age 50 or older you can contribute $7,000 this year and that goes up to $7,500 next year.) But some beginners neglect to actually invest the money in their retirement accounts because they assume investing is automatic when they put in their money.

“I think it stems from the fact that there's just a lot of people who don't have basic financial literacy," Jariwala says. "That's not because it's their fault, and that's not coming from being incapable of understanding.”

This mistake can happen in other types of investment accounts, too. For example, if you're investing in a taxable brokerage account, you also have to make sure you invest your money once it's in the account.

Tori Dunlap, founder of the women’s financial education platform Her First 100k, said in a TikTok that uninvested Roth IRAs are a snafu she also sees often.

“I can’t tell you how many people think they are investing their Roth IRA when they’re only contributing," she wrote. "Take 5 minutes and check TODAY that you’ve bought stocks with your contributions.”

The dangers of not investing

The ramifications of not investing can be pretty devastating. Leaving a Roth IRA or other investment account uninvested for a couple years isn’t the end of the world. But if you’re making contributions for decades and never actually invest your money, you’re going to end up with a glorified basic savings account devoid of the impressive compound interest investment accounts can earn.

Compound interest is essentially the interest earned on interest. Let’s say you put $6,000 into your Roth IRA that earned simple interest at a return rate of 7% versus compound interest at a return rate of 7%. After the first year, you would have identical balances of $6,420 for both types of interest, according to an example from Fidelity Investments. But in the second year, a compound-interest balance would be a bit higher at $6,869.40 compared to $6,840 with simple interest.

After 30 years, the same investment earning compound interest would be $45,700, while your simple-interest investment would only value $18,600, a whopping $30,000 less.

Investment accounts differ based on provider, but if you suspect you’re one of those people who has mistakenly not invested your money, you can check pretty much the same way regardless of which platform you choose. Once you log into your account, look for available cash to trade.

If all your funds are available to trade, that means you haven’t purchased any stocks or other assets. Another way to check is to look under “positions,” which are investments you have bought — if there’s nothing there, you didn’t invest your money.

There is no way to invest retroactively. That being said, it’s never too late to start, according to Jariwala. So, if you have money in your Roth IRA to invest, make sure you invest it ASAP.

Automating your investments

The good thing about investing mistakes is you can course correct — and the longer your timeline is when you fix the mistake, the less of an impact it will have overall, Jariwala says.

While it may not be the best strategy for everyone, an easy way to make sure your money is invested is to set up automatic investments through the platform you used to open your Roth IRA or other investment account. The way you set up your automatic investments will differ slightly depending on the platform, but you can select the funding method you'd like to use, when you’d like the auto investment to begin and end, and the amount of money you’d like to invest.

Your future self may thank you.

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