Busting Investing Myths
I did not start investing until my early 30’s. Why? Because I thought it was risky, and I didn’t have money lying around that I could put at risk. I had heard stories of people losing their life savings on stocks that tanked overnight (although no one I knew personally). And what did I know about picking the “right” stocks? All of these myths (and probably a few more) cost me over a decade of returns that I could have had. Have a look at the myths below and see if any of them are holding you back from a healthier financial future.
Myth #1. Investing in the stock market is for rich people.
This may have been true in the past, but today, almost all barriers to entry have been removed for retail investors (that’s us). The stock market is one of the great generators of wealth over time. Investing is for anyone who wants to enrich their life financially, as well as in all the ways money can improve your quality of life, health, and the future of you and your family.
Myth #2. I need a large amount of money to get started .
This was true 30-40 years ago, but is no longer the case. Commissions and fees have dropped steadily, and with the ability to buy fractional shares and brokerage accounts with no minimum balances, you can now start with very little money.
Myth #3. Investing is complex. I need to learn financial terms and formulas to know what to do.
While there are some corners of the investing world where advanced knowledge is key, most investors should start with some simple. low-cost strategies (which we will discuss soon) that can outperform even Wall Street funds over time. This has been borne out by research multiple times.
Myth #4. To invest in the right stocks, I have to do a lot of research.
Investing in individual stocks does require some due diligence. But, if you are just beginning, it is NOT necessary. The simplest, safest strategies involve investments in large groups of stocks where no research is needed - just some seed money and time to grow.
Myth #5. Investing in stocks will make my tax return even harder to do.
Buying stocks, bonds, or mutual funds has no impact on your taxes – not until you decide to sell. In many cases, you may not sell for years or even decades, so taxes should not stop you from investing. In most cases, if you do need to sell, you can easily get the relevant info from your brokerage statements.
Myth #6. Investing requires a lot of my time.
Only as much as you want to – the recommended starting points require very little time – an hour a month or less.
Myth #7. If I make a mistake, I'll lose all of my money.
There are horror stories out there for sure, BUT for the past 90 years a sensible investing plan hasn’t cost anyone their savings - get-rich-quick, hot stock tip scams are to blame here. As an example, beginning investors should start with an investment like the S&P 500. We’ll talk later about mutual funds, ETFs, and indexes but the S&P 500 is a grouping of the 500 largest public companies. Using a fund or ETF, you can buy one product and essentially invest in all 500 companies at once. If you put all of your investment into one stock, there is always a chance that one company could go out of business and you would lose your money – probably a small chance but not zero. But, if you invest in 500 of the biggest companies, you spread out the risks to nearly zero. There are other ways to reduce risks as well and we’ll get to those in a future post.
The Bottom Line
The best investing advice is “just get started and keep it simple”. As you progress along your investing journey, you may decide to keep it simple or you may check into other resources to further your financial education. Regardless, the more time you are in the market, the better off you are. So, don’t put it off – just get going.
- Uncle Bill
