Many myths about investing have long made it hard for people to think clearly about their money and how to handle it. Myths such as these, which we may hear from family, friends, or the media, can create a domain of oft-misunderstood realities that confuse the potential for investing. False impressions about investment range from the idea, people need a lot of money or wealth to invest, to the impression that past successes (if any) will lead to a future successful investing outcome. Too often, myths distort investors’ confident (or fearful) perceptions. In a time of such unprecedented opportunity for economic independence, myth-busting is a critical tool to combat the lack of understanding about trade-offs toward financial growth and stability.
The perception that investing is like gambling creates a generalization that does not allow for the degree of consideration normally levied, reflecting the chance occurrence of their strategy. Similarly, the perception that small investors do not need diversification does not appropriately gauge the defensive role of diversification to mitigate employment risk in various market scenarios. Recognizing the myth vs bibliographic support can provide clarity to everyone from a novice to an experienced investor in an evolving global trade environment with growing economic opportunity for people. By commencing the process of myth-busting with rational data or a solid basis, any investor can accept and understand that investing with money is based on risk, much like anything else, but the potential of good outcomes may be different in approach and residential planning perspectives.
All these myths project that investigating the myths of investment is focused on helping people understand and appreciate their thinking and attitudes towards investing. Thereby, potentially moving people’s approach to thinking about investing from others into a more contemporary mode of doing so, that reflects market realities as much as possible.
Myth 01: Investing is only for the rich
Reality: Investing is for anyone with a financial goal, no matter income or wealth! Saving for retirement? Down payment for a house? Saving for your children’s education? These financial goals can all be supported through investing to help your money grow over time. With the emergence of micro-investing apps and platforms available, investing has never been more accessible!
Myth 02: Investing in the stock market is just gambling
Reality: Investing in the stock market carries risk and some parallels with gambling, but in no way are they the same! Investment is a risk, with the chance of potential loss if an informed decision is not made. But unlike gambling in the stock market, you can hedge your risks, educate yourself about the companies you’re potentially investing in, own a part of the companies (equity ownership), and share in their growth/profit above and beyond your original purchase.
Myth 03: A financial advisor is required to invest
Reality: Although helpful, financial advisors are not a prerequisite to investing. You should never be in a position where you feel overwhelmed by your options. With unlimited information available, there are plenty of opportunities to educate yourself and figure out what method works for you!
Myth 04: Diversification is overrated
Reality: Diversification is an important investment strategy as it is a strong way to manage risk. The more you spread your investments across asset classes, sectors, and geographies, the less you are likely to be exposed to volatility, and your probability of achieving returns is therefore potentially increased. A diversified portfolio enables you to withstand the volatility in the market and return to your long-term plans for financial success.
Myth 05: Real estate investing is better than stock investing
Reality: Both real estate and stocks have their pros and cons. Real estate investing can provide rental income and tangible assets, as well as require significant capital and property management obligations. Stocks provide liquidity, diversification, and the potential for long-term growth, but can be quite volatile. A balanced portfolio may contain assets from both asset classes of real estate and stocks.
Myth 06: You need to invest in what is hot
Reality: You can see how this would appeal to you, but when it comes to investing, it is often a recipe for failure. “Hot” investment can be overrated, and the popularity of hot assets is not likely to last long. Having a well-diversified portfolio as an aligned investment strategy to your financial goals and risk tolerance is a far more effective investment strategy.
Myth 07: Investing is a one-time event
Reality: Investing is a process. You can never stop investing, or you are not investing. Your portfolio requires regular reviews and adjustments depending on changes in your financial goals, risk tolerance, and changes in the market. Routine examination and adjustment will help make sure that your investments remain aligned with your goals and strategies.
Myth 08: You cannot invest in a volatile market
Reality: Market volatility is simply a by-product of investing; instead of feeling compelled to avoid investments during volatility, view it as an opportunity to purchase a quality investment at a discount. A long-term perspective and diversification will help you weather the market.
Myth 09: Investing takes a lot of time and work
Reality: Investing does not have to be time-consuming and hard work. Index funds, ETFs, and robo-advisors are proving to be a big gain in engaging in investing. Clearly define your goals, select an appropriate investment vehicle, and let time and consistency work in your favour.
Myth 10: Past performance guarantees future results
Reality: Past performance does not guarantee that something will work again in the future. Just because you made tasty gains does not mean that the investment will rise indefinitely. All investments must be evaluated based on the fundamentals of the investment itself, the quality of management at the company, and industry norms to help with the evaluation, instead of solely depending on past investment performance.
Conclusion
Investing is an opportunity, not a set path to achieving success. While many view investing as a great risk, it requires patience, work, and education. To help improve your knowledge about investing and foster confidence to invest, we have exposed some common myths about investments. As you journey forward into the investment world, we hope we have helped you make informed decisions and enjoy the process of accumulating and securing financial success!
At Rubik Wealth, we really believe investing should be a journey and not a puzzle. But knowing which direction to go can be daunting given the complex literature, mismatched motivation, and outright misconceptions surrounding investments.