It doesn’t come as a shock, but making decisions around investing does not come easily for everyone. There is an array of platforms and investments that assure a multitude of returns. This can be baffling at times. While some of them may be promising, others are often fraudulent. The uncertainty is inevitable wherein multiple options are available. This can make many people stay as far from it as possible.
There is a constant thought – “How do I know it will turn around alright? What if I get duped?”
A prime reason behind this fear is the myths, false ideas, and beliefs around investing that we have all grown up believing. Here, in this guide, we will address a few of the most prevalent investing myths that you must stop thinking about instantly.
Myth 1 – Past performance is a guarantee for future returns.
Unlike the prevalent belief, even if a stock or fund performed exceedingly well in the past, there is no guarantee that it will continue to do so in the future. Thus, there are absolutely no certainties in investing.
For instance, if you purchased $1,000 worth of stock from the now successful Silicon Valley startups back in the 1990s, your initial investment would have grown considerably now. However, this does not mean that if you put $1,000 in the same stock today, you will get similar returns in the coming two decades. Successful investing requires a fluid approach to the volatility in the market. Thus, an understanding of risks and volatility is necessary for a well-performing investment.
Myth 2 – Investing is a complex process.
This is another one of the most widespread myths, but this also is not true. Investing is only as complicated as you allow it to be. It also implies that investing can be as simple as you would want to make it. It only needs some money, time, and effort to research the different stocks, pay for the esoteric alternative investments, and layering on complex derivatives. There is an array of people who will be happy to do business with you. More so, there is an equal chance for you to perform better than several active investors by merely holding some passive, low-cost index funds.
Myth 3 – Stocks that go up must come down.
This law of physics does not apply to the stock market. There is absolutely no gravitational force that can pull stocks back to even.
Let us understand this with an example. About two decades ago, the stock prices of Berkshire Hathaway grew from $7,455 to $17,250 per share in a little over five years. It never did come back down. Instead, it rose further up to over $344,000 per share in February 2020.
This is one example, and we are not saying that stocks do not undergo correction, but the fact is that any stock’s price mirrors the company’s reputation. So, if you come across a good firm run by an excellent team of managers, there is absolutely no reason why that stock will not continue to grow in the future.
Myth 4 – Investing is meant only for the rich.
Well, this might be true a few decades ago, but today, not quite much. Back in the day, investing was accessible solely for the wealthy. However, today, anyone can get into investing, even if it is with a small amount. If you are uncertain about the money you can set aside for investing, consider how much you spend on coffee in a week. Try cutting back that amount, and instead put it into your investment accounts every week. As you see, your everyday expense turns into an income stream; you will not regret giving up on coffee.
Myth 5 – Investing in one stock is the best.
Over time, several new stocks enter the market. Even though these stocks garner substantial attention, they are not always worth your consideration. Hence, as they say, never put all your eggs in one basket. Pro investors take this tip seriously and believe in diversifying their portfolios and spreading their money in various stocks. Of course, there is risk involved in investing, but when you invest in just one stock, you risk losing everything if the company goes under. The idea is to protect yourself from losses more than earning big.