Getting started investing can seem daunting when you are first starting out. Especially if you are a young adult or just starting out with your significant other, investing can seem hard.
There is a lot that goes into investing responsibly. You have to do research and fully understand what you are investing in. You should be comfortable with the level of risk associated with your investments.
Even though it can seem complicated, investing is easier than you might think. This is especially true once you understand these myths.
Common Investing Myths
The good news is that you have probably heard several investing myths that are completely untrue. Let’s take a look at a few myths for investors that you shouldn’t believe.
Myth: You Need a lot of Money
Of all of the investing myths, this is one that often stops young people from getting started. Historically, investing has required a sizeable chunk of change to get started.
Buying even a few shares of stocks could cost several hundred dollars. Investing in real estate by buying property costs even more, often hundreds of thousands of dollars.
However, technology and innovation has made investing possible with only a few dollars. There are several investing platforms that have very low minimums, sometimes only a few hundred dollars.
For example, M1 Finance only has a $500 account minimum. This is because they allow buying fractional shares of stocks and bonds. With share prices often being over $1000 per share, this allows you to benefit from large companies for only a few dollars.
Myth: It Takes Too Much Time
Sure, you can spend hours a day analyzing different types of investments and trying to pick the best ones. Researching individual stock picks can be very time consuming.
Fortunately, being a successful investor does not mean that you need to do the research yourself. One of the best ways to get started quickly is to learn from other, more experienced investors.
The Motley Fool is a stock picking service that can help make investing easier and quicker. They have already done the hard work for you doing all the research. Simply review their picks, see if they make sense to you, and buy the stocks in your brokerage account.
Myth: You Have to Pick the “Right” Investment
Even the professionals can’t make the right stock pick every time. If you are investing in individual stocks, there’s a good chance that some of them will under-perform.
Instead of trying to find the one or two perfect investments, work to diversify your portfolio across multiple, high-quality investments. By diversifying, any poor performers will be equaled out by other higher-performers. With enough diversification, your portfolio should continue to go up in value.
Another thing to consider is that the “right” investment is time dependent. Even the best stocks lose value in the short term due to market fluctuations and internal and external factors. Holding a quality stock for 5 or more years makes it more likely that it will go up in value.
Myth: People on Wall Street Know Better Than You
Wall Street spends every minute of their day thinking about investments and immersed in finances. They often know much more about investing than the average investor like you or me.
However, that does not mean that they know better than you, or that their investment picks will outperform yours. In fact, much of Wall Street ends up investing in high-risk funds and stocks that lose money. If they had stuck with a simple S&P 500 index fund, they would have made a solid return.
When you are getting into investing, take the time to do enough research to understand how the markets work. Learn which signals you should be watching out for to make an investment. Once you know the basics, you can easily make investing decisions that will perform as well as the Wall Street experts.
Myth: You Can Make Quick Money Investing
True investing should be viewed for the long-term, not something that will make you some quick money. In some cases, it is possible to see large returns in a short amount of time but that is mostly gambling.
No one can guarantee that a stock will go up or down in value within a certain period of time. You may be able to make an educated guess, but anything can happen. Day traders often lose more money than they earn because it is so difficult to predict what will actually happen.
If you do make a significant amount of money on a short-term trade, good for you. The chances of it happening consistently is pretty slim, so be careful if you think you’ll be able to repeat the same performance.
Myth: The Market is Too Volatile
The stock market does go up and down regularly. Some days are good with it going up, while others can have a serious drop. Beside the daily swings, there are larger trends that make up bear and bull markets. Recessions do happen but they are usually decades apart.
In a sense, the stock market is volatile. But, that does not mean that it is too volatile for investing. When we zoom out and look at the market over many years, there is a consistent trend of the market returning around 10% annually. That means that even if you lose in the short-term, it is highly likely that you will make money over several years.
Instead of worrying about losing money on a daily basis, it is much better to start investing in quality investments and don’t touch them for as long a possible. The only time you actually lose money is when you sell a stock for less than you bought it for. Always wait until it increases in value before selling, which may take many years or even decades.
Myth: You Need an MBA or Special Training to be a Successful Investor
It is true that the more knowledge you have about a particular topic, the better you may be able perform. Investing is no different in the fact that you can’t come in completely blind and expect to do well.
That said, you definitely do not need to have formal training or extensive schooling to get started investing. An MBA is not required and you don’t need experience on Wall Street.
Instead of formal training, you can learn everything you need to by reading blogs and articles, and watching to Youtube videos. Start investing with small amounts and build up your positions over time as you get more experience.
Myth: You Can Time the Market
Timing the market is one of the biggest myths because it is so difficult to do. Waiting for the perfect time to buy or sell is extremely hard and it is unlikely that you’ll be able to choose it correctly. A stock may look to be at a peak today but then it continues to rise for months after you sell.
If you have cash sitting on the sidelines while you wait for the market to drop, you are missing out on potential returns. Waiting 3 months, 6 months, or even more could mean that you miss out on significant returns.
In general, time in the market is much more important than trying to time the market and buy at the “right” time. Over the long-term, the stock market has historically returned around 10%, which isn’t too bad for most people!
Myth: Dividend Stocks are Only for Retired People
Dividend stocks are a great way to generate passive income because they pay out cash on a regular basis. Since they often have lower returns than some growth stocks, people think that they are not worth investing in. Many people think that they are better for people at retirement age, or close to, since it creates consistent cash flow without too much volatility.
Dividend stocks can be an great investment for younger people, as well. Monthly dividend payments make it possible to reinvest to grow the number of shares in your portfolio. Creating a passive income stream is a great goal for anyone.
For those people who think that dividend stocks aren’t worth it, think again. While most dividend stocks pay out around 2% to 3%, there are some that pay much higher. Higher dividends can be riskier, but do your research to find quality companies. It is completely possible to find stocks and ETFs that will pay out 8% to 11% without all of the risk.
Myth: You Need to Beat the Market
For the average investor, there is no need out-perform the stock market. Sure, it is always nice to get higher returns, but that also means there is greater risk. Instead of gambling your money on risky investments, it is better to have consistent, lower returns.
For example, there are growth stocks that could earn 100% in a couple years, if you are lucky. The problem is that they also are very volatile and could tank the next year. Over several years, this type of investment may actually be riskier and give you a lower rate.
The alternative is to invest in an index fund that track the stock market. This will give you returns similar to the market, which is generally around 8% to 10% per year. This helps to diversify your investment, reduce risk, and make it much more likely that you will make money. There is no need to try to beat the market since that introduces more risk.
Myth: Stocks Always Go Up
We have mentioned that, historically, the stock market goes up over the long term. While this is accurate of the overall stock market, that does not mean that all stocks always go up.
In fact, there are many stocks that tank and lose their value. Companies can go out of business or go bankrupt, causing your investments to go to zero.
There are also periods that are bear markets, which means that the value of stocks decline over an extended period of time. While stocks fluctuate on a daily basis, a bear market is when the market continues to consistently decline by at least 20%, also known as a recession.
If you do not make informed investments, it is certainly possible for you to lose your money. While investing can be an excellent way to increase your net worth, be aware that it is also possible to lose some or all of your money, as well.
Myth: It is Never Too Late to Start Investing
Unfortunately, time is the biggest factor with investing. The longer you have money invested, the more money you will be able to make through compound interest.
This means that it can be too late to start investing if you have certain goals. If you want to make a million dollars, it is a lot easier to do it over 30 years instead of 5.
Of course, you should start investing as soon as you can, even if you are later in life. If you are in high school, college, or just starting out as an adult, it is a great time to get started investing.
