The biggest investing mistakes of each generation

499550575
Morsa Images | Getty Images

Every generation makes investing mistakes that later generations can learn from. Our grandparents, parents and older siblings all have been blindsided at one time or another from something about investing they got wrong.

Like millennials scrambling to master the basics today, earlier generations were never formally taught how to invest. They just went with what they thought was best, but that's not always enough.

What's more, even the investing strategies that worked out well for previous generations might be disastrous if used today because the world has changed. Instead of the lifelong employment at a company and guaranteed pensions that our parents or grandparents knew, later generations will work for several employers over a lifetime and depend more heavily on their own savings in individual retirement accounts and 401(k)s to ensure a comfortable retirement. While learning from another generation's mistakes is important so is understanding whether what they did right would still work today.

More from U.S. News:
7 ways to pay less for your investments
A guide for investing in rental property
5 things landlords wish they'd known

The silent generation goes broke slowly. Born during the Great Depression, the silent generation (1925–1945) has always had an aversion to the stock market. This generation trusts banks but not brokerage firms, says Beth Blecker, CEO of Eastern Planning in Nanuet, New York. They put their money into certificates of deposit and left it alone. This strategy may have worked well when CDs paid interest north of 10 percent, but with today's miserly rates, putting your money into CDs alone is a surefire way to go broke slowly.

Thanks to pensions and the promise of Social Security, there also wasn't a big impetus for this generation to invest. The stock market was seen as the rich man's playground, says Holly Kylen, a financial advisor with Voya Financial Advisors, based in Lititz, Pennsylvania.

The silent generation also "unknowingly takes on risk by forgoing diversification," Blecker says. They tended to invest heavily in an employer's stock, and believed that the most important investment decision anyone could make was which company to work for, Kylen says. That made sense decades ago when whom you worked for came down to which company provided the best pension.

Today, however, pensions have gone the way of the dodo, and investing heavily in an employer's company stock runs the risk of a painful double whammy if the business goes bust: You lose your job and a large chunk of your savings at the same time.

Members of the silent generation worked hard and retired secure in the knowledge that their company and government would support them. For successive generations, that world is long gone, and baby boomers who follow in their parents' footsteps risk running out of money in retirement.

Baby boomers underestimate retirement costs. Many boomers (1946-1964) mistakenly believe they should allocate their portfolios to super conservative investments such as bonds and cash in retirement, but this is a losing strategy, says Kyle Ryan, head of advisory services at Personal Capital in San Francisco. "In reality if you retire at 65, it's very likely you're going to need this money for 30-plus years," he says.

Bonds and cash simply cannot provide adequate income for that long a time. If baby boomers don't have sources of growth to outpace inflation, Ryan warns, they may run out of money. "The last thing you want to do is underestimate your longevity."

Knowing little about investing hampered this generation. When boomers first started to invest, the mantra was, "buy what you know," says Robert A. Karn, principal of Karn Couzens & Associates, a financial services firm in Farmington, Connecticut. Boomers filled their portfolios with the stock of companies they recognized and admired, but failed to realize that a company that makes good shoes does not necessarily make a good investment. The result was uneducated investors picking companies the way high schoolers pick a class president, before learning the hard way from the dot-com collapse that they did not know enough about investing.

Generation X sacrifices retirement for their kids' education.Inflation and the cost of education have increased faster than almost anything else for gen x (1965-1981), Ryan says. As a result, "we see a lot of people in this age range prioritizing their kids' future education ahead of their retirement," which can put them – and their kids – in a difficult position later on.

By saving their kids the cost of an education now, gen Xers risk costing their children even more down the line. There are many ways besides your savings to pay for your kid's education, whereas "there's not a lot of ways to replace retirement income other than by working," Ryan says.

Gen Xers also have had a turbulent ride in the stock market, from the dot-com boom and bust to the 2008 financial crash, "and it did basically scar them as a generation," says Karn, adding that gen Xers are particularly prone to emotional buying and selling of stocks.

The trick to not overreacting to market movements is to consider how what is happening today affects your long-term goals. It's advice millennials may want to heed.

Millennials are too short sighted.Members of this generation want it all and they want it now. When gratification isn't instantaneous, millennials (1982-2004) tend to call it quits altogether.

But investing is like building the base of a snowman, Kylen says. When you start rolling the snowball around in the snow, it can seem like forever before that base gets big, but given enough time, you'll be amazed by what you have amassed.

It's hard to maintain a long-term perspective if you can't see beyond short-term goals. According to Personal Capital's 2016 Retirement Readiness Survey, 40 percent of millennials don't have any retirement savings. "History has proven the earlier you start, the better off you'll be in the long-run," says Yvette Butler, president of Capital One Investing in McLean, Virginia. "You won't miss the money once it's in your investment account, and you'll be glad you did it when you see those numbers increase."

One thing millennials are better at than their predecessors is taking an active role in managing their investments, Kylen says. The younger investors who come into her office are increasingly armed with questions. They are asking for the investing education that earlier generations were never given.

Some mistakes transcend generations.A general lack of awareness is the fatal flaw of today's investors, no matter their age. More than one-fifth of investors don't know how high the investment fees they are paying are, Ryan says. Another 10 percent don't even know if they are paying any fees at all.

Fees of only "one or two percentage points can have a big impact on your bottom line over time," Butler says. "New fiduciary rules are requiring brokers to be more transparent in what they charge, so take advantage of that. Ask questions, demand transparency, and make sure you're keeping costs low (under 1 percent) so you can put that extra money toward your own retirement and not in someone else's pocket."