These Are 6 of the Most Common and Damaging Myths about Investing

These Are 6 of the Most Common and Damaging Myths about Investing

For many people, the world of investing can seem confusing and complicated, causing them to avoid it altogether and miss out on the potential for compounding gains. Others who are already actively investing may make poor decisions because they are influenced by common misconceptions or bad advice. In both situations, the large number of myths about investing can cloud judgment and cause financial missteps.

Understanding the most common myths about investing can help you make the right decisions to set yourself up for healthy personal finances. Some of the most frequently shared myths about investing include:

Myth #1: Investing involves a great deal of research.

People often equate investing with purchasing stock in a company. Indeed, purchasing stock should involve a significant amount of research into the company and its history, but this is only one of many ways to invest. If you feel like you do not have the time to devote to this, then you have many other options that are much easier and do not require any sort of deep knowledge of investing or the markets. For example, you could purchase shares of an index fund, which does all the research for you. An index fund has already-created diverse portfolios that are meant to track the market as a whole, which means volatility is less of an issue.

Myth #2: You will lose everything if the market crashes.

Some people are afraid to invest because they feel like they could lose their money. While market crashes can cause panic, they do not affect the majority of investors. Most people invest with a long-term view, which means that these crashes and fluctuations matter less over time. If you are constantly checking the value of your investments, the drop in worth could cause you to panic, but the reality is that the price will likely recover in the years to come and you will not lose any money over the long term. Avoid panicking and selling off your investments when the market crashes since you will only be locking in those losses. Instead, hold onto the investments and watch as they regain their value.

Myth #3: Gold is one of the safest investments available.

While stocks and bonds are the primary tools for investing, you can also invest in more concrete resources, such as gold. Many investors choose to add gold to their portfolio since it performs differently than both stocks and bonds. For that reason, it can add some stability to a portfolio by increasing diversification.

However, it is important to note that gold itself is not necessarily a stable investment. While gold may have long periods of stability, it can also be extremely volatile. Just as with any other investment, it is important to have a long-term view rather than a short-term one.

Myth #4: International investing is extremely risky.

Many investors dismiss international investments because they have a reputation for being very risky. Also, the American market often outperforms international investments. However, this is not always the case, and many international investments are very strong options, even for relatively novice investors.

In reality, there is a range of different markets around the world, and you will need to do some homework to identify which options are the best for you. At the same time, international markets perform differently from American markets, so adding these stocks and bonds to your portfolio can further boost diversification and drive overall stability. International funds are a great place to get started since they can remove a lot of the homework and guesswork.

Myth #5: You can easily time the market.

The media can make timing the market seem easy. Timing the market refers to the ability to buy and sell assets quickly to maximize profits. For example, you can buy the next hottest stock before its price rises and then sell it off for a massive gain. While many people have built entire careers around timing the market, even they make mistakes.

Trying to time the market as a novice investor can put you at a significant disadvantage and make it quite difficult to recover from fumbles. Instead, focus more on diversification and long-term viewpoints for your investments. Slow and steady growth will likely pay off more than trying to turn a quick profit, which involves a great deal of risk.

Myth #6: You need a professional to manage your money.

Too frequently, people equate investing with money management. If you have millions of dollars invested and need to minimize taxes associated with them, it makes sense to hire a professional. However, if you are investing in long-term goals like buying a house or retiring, then you can easily learn everything you need to know on your own. The fees associated with money management can cut into your earnings significantly, especially if you do not have a lot of money to invest.

Of course, you may need some advice from time to time. When this happens, you can consult with finance professionals for a much lower fee to get the advice or answers that you seek. When looking for advice, make sure you hire someone who is a fiduciary, which means that they are legally and ethically obligated to act in your best interest.