If you’re interested in managing your money better and building wealth eventually, I’m sure investing has probably come across your mind. Investing can be a complex and tricky concept to a lot of people. While there are plenty of benefits involved with investing – including the most obvious one, growing your money – many people still avoid it like a bad habit.
Last year CNN Money reported that more U.S. families owned cats than stocks and how America’s shrinking stock ownership had dwindled to a mere 13.8% of the population. There are plenty of myths and stereotypes out there that can turn someone away from wanting to invest. But the truth is, falling for those myths and failing to invest can cost you. Don’t lose precious time or your money by falling for these common investing myths.
Myth 1: You Need A lot of Money to Get Started With Investing
Before I took the time to learn about investing, I used to think it was only beneficial to older people who were already rich. That definitely wasn’t me, so I had no business trying to invest right? Wrong. Falling for this common myth can easily scare you away from investing early with what you have and having the opportunity to watch your money grow over the years.
It’s true that you need money in order to invest, but probably not as much as you think. Employer 401(k)s allow you to start investing in your retirement with as little as 1 percent of your annual salary. Some mutual funds have a minimum of $100 and digital brokerage services like Betterment require no minimum amount to start investing. With investing, the main idea is to just get started, not plow in thousands of dollars right from the get-go.
Myth 2: Investing is Just Gambling and I Don’t Have Money to Lose
No one wants to lose money when investing, but much like a casino, the option of losing money does exist. Unlike gambling though, with investing the odds are not against you as the market is bound to average an annual return each year unlike those slot machines you can lose all of your money on. When you think about it, everything in life involves risk. You wouldn’t start riding a bike or driving a car if you didn’t know how.
In order to decrease the risk associated with investing, study the market and learn about your options. Learn about mutual funds and how to diversify your portfolio. Some months may take a harder hit than others but a diversified portfolio that you continue to invest in will certainly earn you more money as time goes on.
Myth 3: Since Investing is Risky, You Should Put It Off Until You Are Much Older
Believing there is an appropriate age bracket you need to be at in order to start investing is a big misconception. In fact, thanks to compounding interest, the earlier you begin, the more money you will most likely earn. Compound interest is basically the interest added to the principal of a deposit so that the added interest also earns interest and so on – commonly known as “compounding”.
For example, if you have debt payments that accumulate interest, imagine investing money into the market and actually earning interest instead of paying it. If you were to invest $1000/yr for 40 years and average an 8% return from the market, you could wind up with more than $250,000 and a whole lot more if you steadily increased your investments each year. But if you don’t start early, you may not allow your investments the time needed to grow. The key to finding success with investing is time. When you wait and put it off, you ultimately run out of time.
Myth 4: Investing “Pros” Regularly Beat The Market
Most investors just assume that professional money managers beat the market. After all, they have Ivy League MBA’s right? Those mutual fund managers spend every single day picking stocks, trading bonds, and are 100% focused on growing your money right? Well, although we pay mutual fund fees for so-called experts to manage our money, the facts show that very, very, few actually beat the S&P 500 index funds. Of course there are some fund managers who might beat the market for a few years in a row and they become superstars, however, they aren’t able to beat the markets year in and year out. For these reasons sometimes it just might make sense to invest on your own, instead of putting your money with a professional.
Did you ever fall for any of these investing myths? What are some other myths you’ve heard?
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