Investing is one of those things that everybody talks about doing or at least wanting to do but nobody has quite a read on the how. I mean many people will tell you to invest but very few can tell you how to do it. And while this is because many people are not investment advisors, it also happens to be because many myths surround investing. Many of these myths are debunked too late in life for many people and you will often hear the “if I knew then what I know now” type of statements. Fortunately for you, were going to debunk some of the most toxic myths around investing that have prevented people from taking advantage of this wealth builder. Investing in simple terms is pitting your money to work for you that it may produce more money.
You need a lot of money
While the object of investing is using money to make money, the common thinking is that you need a lot of money. It is not an unfounded myth, depending on the nature of the investment many investments will prefer to work with high net worth individuals as they tend to have more patient capital to work with. This is in the brokers best interests and not yours. Waiting to hit a magical number to start investing is the surest way to guarantee your investment journey doesn’t start. There investment products that are suited to smaller amounts of money such as unit trusts and the recently launched ETFs that will allow you to accumulate capital for investment vehicles that require larger capital to play with.
Picking the right stock
While this applies mostly to those investing in stocks the myth is kind of widespread in getting rich quick offers. The magical idea, stock, product that nobody has heard of until today that is going to blow up and give you 100 times your money in the next 30 days. Is this possible? Yes! Is it probable? No. While you will hear great stories of how someone invested in a particular company 10 years ago and has now made a fortune from it beware survivor bias. Survivor bias looks at the wins but forgets that the same person likely invested more in companies that failed in the same period. Another place where this sort of storytelling has become very popular is in cryptocurrency. For every Bitcoin millionaire, there are thousands of people who have worthless other cryptocurrencies they put just as much effort into. Understand that people are working tirelessly to find the winning investment and the greater majority of them are not succeeding, at least not so easily.
Takes a lot of time
Well, this one is tricky because there are two ways to look at it. Firstly, investment is a time game, that is not a myth. The longer you have in the game the more you can accumulate, it’s that simple. The other way to look at is that investing requires a lot of time spent in getting the investment right and this is the myth I’d like to bust. An important part of investing is understanding the thing you’re investing in. This is often the difference-maker between a scam and an investment. Legitimate investments are not complex and the time required to understand the area you’re investing in shouldn’t cost you more than 30 minutes of reading time per day. The whole idea of investing is that it doesn’t require your time other than the time it takes to understand the investment and do due diligence.
Timing stock markets
For reasons we have discussed before the likelihood of you finding the perfect investment at the perfect time is really small. With obvious reasons. We only hear about things when they are popular and the best time to get into most of these things is before they are popular. Timing stock markets is possible. But when you look at your level of expertise versus the institutional investors and pension funds that have investment analysts running econometric analyses on markets daily you kind of see that you are a very small fish in a ridiculously huge pond, an ocean. However, a rising tide raises all vessels in the ocean and stock markets and other investments favour those who take action. In the long run, investors come out with positive returns even in turbulent economies.
A lot of people are afraid of losing all their money in investing. Formal investments do have a history of times when things have gone wrong for those invested. A lot of work has been put into making sure such occurrences do not repeat and while great strides have been made nothing is 100%safe. If you’re ever in doubt, ask the provider what security there is for your money in the investment channel. Risk is a part of investing and this is how the money is made but also how money is lost. However, investing is not risky. As we have established matters like understanding the investment and due diligence are very important parts of investing in anything. Take the risk out of investing by making sure you understand what you are investing in and how it works. People are often drawn to investments based on the potential upside but understanding the potential downside is just as important if not more.
What other myths about investing have you heard?