Myths About Investing: Since the 1970s, investing has been seen as a complicated task best left to the wealthy and too hard for the normal person to handle. But these ideas are quickly disappearing as the abundance of investing apps and advocates grows at an accelerating pace. These factors have made investment more readily available and simpler to understand.
Despite the changes that have taken place in the financial world, there are still certain costly myths that remain prevalent. Here are five of them for you to make a note of:
Myths About Investing #1: Investing is only for the wealthy
This misconception persists in part because of the adage “it takes money to make money.” Although it is true that you need some money to invest, you no longer need thousands of dollars to get started. When most people hear the word “investing,” they picture stock picking, day trading, or millions of dollars, but the truth is that every person who has put away even twenty bucks in an account for retirement already has money invested.
There was a time when meeting with a financial advisor at an investment firm required a minimum deposit of $5,000 and as much as $250,000. Furthermore, if you were to buy shares in a company, you’d have to purchase a full share, which might cost hundreds, if not thousands of dollars.
The fees and minimums associated with investing services have dropped significantly over the years, making this no longer the case. You can take part in the same percentage increase as somebody who has more money to invest thanks to fractional shares investing, which are now offered by a large number of brokerages. These shares allow investors to purchase a share of their choice for as little as $5, giving them access to the same market.
Myths About Investing #2: It is safer to keep your money in cash than in the stock market
It could seem more secure to keep your money in the bank during times of market uncertainty. This is a typical response when people fear seeing their savings go rapidly because of market volatility. Even while the actual value of your savings will not suddenly decrease (unless you make a withdrawal), your purchasing power may decrease over time as a result of inflation.
For instance, $100 in investments that became fully vested ten years ago would be worth around ten times that amount now on average. If the same $100 had been invested in the S&P 500 throughout the same time period, it would have grown to approximately 10 times the amount it is right now. The term “opportunity cost” refers to this concept in economics.
If all of your money is held in cash in a bank account with a low interest rate, you run the danger of losing purchasing power because inflation is currently higher than interest rates. Money that is invested works harder for its owner and has the potential to increase in value over time.
Myths About Investing #3: You shouldn’t start investing until all of your debt has been paid off
One of the most heated debates in personal finance is whether one should prioritise paying down debt or investing. This is completely not the case, as it puts the person’s future wealth and financial stability in serious jeopardy if you advise them to hold off on investing until the debt has been paid off.
The weight of student loans and the way in which they have stretched finances for millions of families is one of the reasons why this subject has been brought up so frequently in recent years. If you have a limited amount of money, every choice you make will have a greater impact: putting more of your attention towards paying off debt can result in a debt-free lifestyle with an increase in the amount of cash that is available for other uses, while investing can help your overall nettworth improve and contribute to a comfortable retirement.
When thinking about this topic, some of the most essential considerations to make include the kind of debt you have and the total amount of that debt. However, it is also essential to consider the opportunity cost. It will be considerably more challenging to achieve your retirement goals if, for instance, it takes you 10 years to pay off your loan debt, which means you also missed out on 10 years of compounding growth on your investment.
Myths About Investing #4: The share market always rises
Even seasoned investors and analysts can’t predict what the market will do next with any degree of certainty. Take as much care with your share portfolio as you would with your own house. You undoubtedly gave a lot of thought to the number of bedrooms, the size of the yard, the convenience of the neighbourhood, and other variables before making the purchase. You made your choice based on several factors, not just the home’s price.
Would you rush to sell your property if you discovered that it was currently worth $30,000 less than you had originally paid for it? It’s unlikely, to say the least. Because your property is a long-term investment, you probably wouldn’t sell it based just on the price. You ought to take the same approach towards your investments.
The stock market, like the real estate market, is subject to cycles of growth and decline. Taking a step back and surveying the landscape is the first and most crucial step. Is your current portfolio allocation satisfactory? If that’s the case, you should keep going and think about the big picture.
Myths About Investing #5: Investing and gambling are the same
As a result of this line of thinking, a significant number of people avoid investing in the stock market. We need to study what it means to buy stocks in order to see how it is different from gambling. A share of a firm’s common stock is equivalent to ownership in that company. Shareholders have a claim on the company’s assets and a portion of the company’s profits with this type of ownership. Investors make the common mistake of viewing shares as nothing more than a medium for trading, and as a result, they forget that shares constitute their ownership.
When compared to this, gambling is a lose-all activity. The only thing that gambling does is transfer money from a person who loses to someone who wins. Investing increases the national wealth because it does not destroy value but instead adds to it. Competition among businesses drives productivity gains and new innovations that better people’s daily lives. It is important not to confuse investing and building wealth with the zero-sum game of gambling.
Conclusion
Rules of thumb are useful guidelines for making financial decisions, but they should never be used in place of careful analysis of your specific circumstances. Consider going to a financial expert so that you may get answers to your enquiries that are more specific to your situation.
