As you develop your financial knowledge, it’s natural to want to learn more about investing. After all, investing is a proven method for growing wealth, so who wouldn’t want a part of that?
But there are several common myths that can hold you back from investing. Clinging to these myths might even cause you to lose money.
1. Investing is too confusing for regular people
If you’re new to it, investing can be quite confusing. There may be a lot of terms that you don’t understand, and you may feel like it takes a degree in finance and a job on Wall Street to make sense of it all. But it doesn’t have to be complicated.
In fact, if you have a 401(k) through your place of work, you’re already investing. Investing really only takes two things: some money, and something to buy or invest in, with the hopes that it will be worth more later.
It’s a good idea to keep things very simple until you know more. If you’re already investing through a 401(k), keep it up, or contribute more. If you want to invest in addition to that, read up on investing concepts for beginners in our article: How To Invest: Essential Advice To Help You Start Investing.
As always, decide for yourself after you’ve done your research, and don’t let anyone pressure you into a decision you’re unsure about.
2. You need to have lots of money to invest
Investing can seem like a real insider’s club – one where you need to have a lot of money to be a member. But that’s not true at all. You can open an account with as little as $1 or $100 and buy only what you can afford. And with a lot of brokerages, trading commissions have dropped to zero, or close to it, so making a trade won’t cost an arm and a leg.
One way to invest if you don’t have a lot to spare is by using an online platform with low fees and low account minimums. You have access to a wide variety of securities to trade without eating up your returns in expenses.
Read more: The Best Robo-Advisors Of 2021
3. If you pick the right stock, you’ll get rich
Some people think investing is just picking the right stock and sitting back as it skyrockets in value. Those are the people who always kick themselves for not buying Apple in the 1990s or Amazon when it first went public.
Sure, picking a runaway winner is a great way to get rich over time. But if it were that easy, everyone would do it. Plus, even stocks that look amazing now, in hindsight, had their own wobbles, with huge drops in value.
Between 2007 and 2009, Apple stock dropped more than 50%. If you had tied all your money in that stock you would have been sweating bullets. And if you had sold then, in an effort to stem your losses, you’d really be kicking yourself now.
All that to say, picking “the right stock” means a combination of timing the market and seeing the future — neither of which is possible. It’s not always easy to make money, and in fact, you risk losing everything when you put all your eggs in one basket. Picking whatever seems hot right now is not a surefire tactic, so again it comes down to carefully researching your investments and balancing risk against the potential for growth.
4. If you want to invest, you have to hire someone
Some people assume that if you want to invest, you have to hire someone to do it for you — and who has that kind of money? Not everyone that’s for sure. But you don’t have to have a stockbroker or hire an advisor to invest your money for you. You can do it yourself.
For example, Robinhood is an online platform for what it calls “self-directed” investors: people who have taken investing into their own hands, executing their own trades on their own schedule. At Robinhood, trades are commission-free, leaving more of your money available to invest.
There are plenty of robo-advisors and self-directed trading apps out there that don’t cost thousands to use, and that are actually easy to use. You can find a list in our Best Investment Apps article.
5. If you can’t time it right, don’t bother
So much of the talk around investing involves what the market is doing. Is it up? Is it down? While it’s important to know the overall climate you’re investing in, as well as the general performance of your particular investments, all the talk about market moves may leave some people feeling like they’ll never time it right.
In reality, the value of individual securities and the markets as a whole is always going to fluctuate. Nothing is static, and values change minute-to-minute. Waiting to jump in is like waiting for a river to hold still: it’s going to keep moving whether you’re ready or not, so you might as well jump.
If you subscribe to the theory of “buy-and-hold” investing, where you purchase investments and hold them for the long term, it really doesn’t matter much if you buy in July or November, because you’ll be holding on to that investment for years, if not decades, especially if you’re a younger investor. This method gives your investments lots of time to ride out the volatility of individual surges or retreats in value.
Similarly, if you follow dollar-cost averaging, where your investing is consistent and regular over time (say, by using an automatic investment plan through your broker), then what you end up doing is averaging out the price of the investments you buy. If you buy regularly, then you might purchase an investment at a higher price this month, because the stock is up, and at a lower price next month because the stock is down, but over time the price and value average out.
6. Investing requires a lot of your time and effort
When you think “investing,” do you picture someone glued to their phone, tracking the stock market’s every rise and tumble, panicking about prices?
If you’re worried that investing is a commitment you just don’t have time for right now, rest assured. You can invest almost totally hands-off, just checking in on your investments from time to time — even just once a year if you’re investing for the long term.
You don’t have to babysit your investments. You don’t have to trade every day. In fact, you can make a well-researched buy, perhaps in a mutual fund, index fund, or ETF that you have confidence in, and leave it be to accumulate value.
There’s no need to follow the markets all day long and feel pressured to pay attention to every blip.
If you don’t know where to start, read up on your best options in our article: Best Investment Accounts For Young Investors.
7. Investing is the only path to wealth
There is a definite narrative that investing is the only path to wealth. It may sound as though all you need to do is hit it big on one good stock and you’ll be golden — but that sort of thinking is right up there with depending on winning the lottery as your retirement plan.
To be able to use your investments to build wealth, the other aspects of your financial plan have to be in place. You should have a reliable income, and spend less than you earn. Make sure you’re saving a reasonable percentage of your income, and that you are prepared for retirement with a retirement account (or pension, if you’re one of the lucky ones).
Work hard to reduce and eliminate your debt, especially high-interest debt; once your loans are paid off, that leaves more money available to invest. And continue to improve yourself, so you have something of value to offer the world. No bull market lasts forever.
Plus, investing isn’t a magic ticket, and there are no guarantees. You could be the most prudent investor in the world — and then something truly unexpected comes along that turns all established advice on its head (like a global pandemic!).
With investing, there’s always risk involved, and you must be prepared for it.
Have no idea what your risk tolerance even is? Hop over to our article How To Determine Your Investing Risk Tolerance to learn more.
Investing can seem like a complex topic, but it doesn’t have to be. It’s easy to get caught up in myths about investing and difficult sometimes to know what is true and what is not. Understanding some commonsense truths about investing will help you separate fact from fiction so you can make educated decisions and grow your money.