The financial world often seems daunting to many people and this prevents them from investing. It is often common misconceptions that get in their way. They are often close enough to the truth to confuse people and cause them to take some unwise investment decisions. The best defense against these common investment myths is some financial education.
1. You need plenty of money to get started
Many investments don’t require a whole lot of money to get started. You can invest in exchange-traded funds (ETFs) for the cost of just one share instead of trying to predict which individual stocks will do well. These funds are a collection of investments vehicles like stocks or bonds that help to diversify your portfolio.
There are a number of investment firms with small minimum requirements today and you can even use a mobile app on your phone to create an account and invest small or larger amounts.
2. There is a right and a wrong time to invest
Trying to time the market is usually an exercise in futility. Over time many investors who try to do this find that it is very difficult if not completely impossible. There is no wrong time to invest and the sooner you start investing, the more opportunity you have to build wealth.
Not even professionals know what the stock market is going to do. It will always go through ups and downs and it is important to take a long-term perspective when investing. You are better off investing regularly as opposed to waiting for a big market correction.
3. Investing is like gambling
Investing is all about taking calculated risks. When you pull a lever on a slot machine, this isn’t a calculated risk and you are more likely to lose money than win.
It is not just buying and selling wildly with the off-chance that you may just be successful.
You have to build a well-balanced portfolio and diversify across asset classes like equity, gold, debt and real estate and then further diversify within those asset classes to balance your risks and make sure that if some assets are performing poorly, others are doing well. Yes, there is a certain level of risk that comes with investments but your risk is less if you do your research, assess your options carefully, and invest using secure and regulated platforms.
4. You should base investments on what’s currently performing well
If you look at investments that are currently performing well and make investment decisions on what you think is a successful trend, it’s a mistake. Every asset class performs in cycles and what’s working today may not work in a few days, months or years.
Trying to time the cycles is not a good idea. You may think that since the stock market has risen for two years in a row, it’s due for a correction and sell out most of your stocks. The correction may not happen for another couple of years. It is always best to diversify your portfolio and stay the course to give it the best opportunity to perform well.
5. Savings will secure your future
Saving has an important place but savings accounts offer low interest rates and they don’t keep up with inflation. Unless you use your savings to invest in products that beat inflation, they won’t secure your future. Even if you put your money in fixed deposits, your post-tax returns are likely to be lower than inflation rates. If you diversify and invest your savings in different asset classes, it’s possible to beat inflation and grow your wealth.