Don’t let these myths hold you back.
When it comes to investing, many people are worried about getting started — or even think they can’t. From the outside, investing looks daunting. How do you know you’ll do it right? Part of the problem is that a number of myths have grown up around investing. Here are seven of the myths that could be holding you back — and the truth that might encourage you to get started.
You need a lot of money.
One of the most common myths about investing is the idea that you need a lot of money to get started. Nothing could be further from the truth. In recent years, a number of brokers have rolled out apps and programs that allow you to start investing with very little. You can even invest with pocket change. No matter how little you have available for investing, there’s an app that can allow you to move forward. Websites like Betterment allow you to commit as little as $100 per month and, if you invest with Acorns, you can arrange to have your purchase amounts rounded up to invest.
The stock market is too volatile.
It’s hard to get excited about investing when the market drops 500 or 600 points in one day. However, even though there’s day-to-day (and sometimes year-to-year) volatility in the stock market, over time the trend line tends to smooth out — and in an upward direction. Trying to time the market can cause problems for your portfolio, it’s true, but if you have a long-term plan, it’s possible to get through the volatility and come out on top. Rather than worrying about the day-to-day of the market, consider investing for the long term. The stock market as a whole has yet to lose in any given 20-year period.
Stocks are the only option.
So often, when thinking about investing, it’s easy to get caught up in stocks. However, there are other types of investments that can provide you with a little diversity. Bonds, real estate, commodities, and even currencies are all choices for investing. However, a portfolio that focuses heavily on stocks is likely to be appropriate for most investors. But if the stock market makes you a little nervous, there are other options. Consider allocating up to 20% of your portfolio in other asset classes to provide a bit of diversity.
You have to pick the “right” stock in order to succeed.
Another investing myth that holds would-be investors back is the worry about stock picking. So much emphasis is placed on individual stocks and potential superstars. However, while getting the right stock can be good for your portfolio, stock picking isn’t required if you want to be a successful investor. Instead, if you’re nervous about picking stocks, consider investing in index funds or index exchange-traded funds. Index investments take a wider swath of the market, so you’re relying more on market performance overall, rather than hanging your hopes on a few (hopefully) well-chosen stocks.
It takes too much time to invest.
It’s not uncommon to picture an investor, carefully poring over reports and spending hours adjusting stock screeners to get just the right stock at just the right time. The good news is that investing doesn’t have to be time consuming. In fact, if you get involved with index investing, you might not have to do a lot of trying to find the “right” fit. A broad-based fund doesn’t require a lot of research. On top of that, robo advisors can help you build a portfolio based on your long-term goals and risk tolerance, without taking up more than a few minutes of your time.
Sell when the market is in trouble.
One of the biggest myths that people fall victim to is the idea that it’s wise to sell when the market is in trouble. While, intellectually, this might not be a myth, the reality is that behavior tends to become irrational when the stock market falls. Selling while the market is down locks in your losses, and if you buy back in during the recovery, you’re paying more, while missing out on some of the gains. Rather than selling when the market is struggling, it might actually be a good idea to buy more — while you can find some solid bargains.
The professionals always beat the market.
While some professionals can beat the market some of the time, peer-reviewed studies have found that it’s rare for an investment professional to outperform the market. You might do better with a low-cost index fund. Besides, why do you need to beat the market, anyway? The idea behind investing should be to meet your long-term financial goals, not have a contest with the market (or your friends). While professionals can help you set and achieve financial goals and can even provide insightful financial advice and manage your money on your behalf, the reality is that they’re not always going to beat the market — and you shouldn’t expect them to.
Don’t believe these investing myths.
— You need a lot of money.
— The stock market is too volatile.
— Stocks are the only option.
— You have to pick the “right” stock in order to succeed.
— It takes too much time to invest.
— Sell when the market is in trouble.
— The professionals always beat the market.
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