Oct 11, 2022

The Biggest Myths of Investing

If you've never done it before, you might think that investing is only for rich people. But investing is one of the best things you can do with your money to improve your finances and make more money over time, no matter how old you are or where you start. Let us help you sort out the facts from the myths.

6 Biggest Myths of Investing

Biggest Myths of Investing

If you've never done it before, you might think that investing is only for rich people...However!

Investing is one of the best ways to use your money to improve your financial situation and make more money over time, no matter how old you are or where you start. When the truth is separated from the myths, it's easier than ever to start investing. If you look past the common ideas about it, you might find that it's a good fit for you.

Myth 1: "Investing is the same as gambling."

What's True:

Even though you can lose money in both poker and the stock market, there is one big difference between the two. For example, in gambling, you aren't given a lot of information to help you make decisions because doing so would be against the rules and give you an unfair edge.  You can't walk around the table and look at the cards your opponents are holding. From the dealer's seat, you can't see how many cards are left in the deck. You don't see the details that could give you more information and improve your chances of winning a poker game. In investing, on the other hand, making decisions based on facts is not against the rules; in fact, it is the best way to make money on the stock market. Almost all experts say that before you think about making an investment, you should find out as much as you can. In reality, it all depends on how you think about investing.

If you get your ideas from Reddit forums and meme stocks, it's probably more like gambling than investing. When it comes to investing, asset allocation is more important than picking individual securities. This may sound like jargon or gibberish when it comes to money. But, in plain English, it's more important to think about what asset class you buy, such as stocks, bonds, real estate, commodities, cash, and so on, than to try to say, "This stock is better than that one."

Myth 2: "Timing the market is risky, hard, and tricky."

What's True:

The truth is that this is partly true, but investors can look at systems and processes. Trend following and momentum are two risk-reduction strategies that have been proven in the academic world. "I think I should do this; I'm going to sell it today and buy it back later" is no longer an option. There needs to be a system, just like there needs to be rules and a plan. For example, you decide what kinds of investments you can make. Figure out what kinds of investments you are willing to make and which ones you won't. For example, will you put your money into risky mining stocks or only in big, well-known companies? You can change your investment goals over time based on how skilled you are and how much risk you are willing to take. Having a plan can help you make less emotional or hasty choices. In reality, it's hard to time the market, but it's not hard to have a plan.

Myth 3: "If you own more stocks, your portfolio will be more diversified."

What's True:

This is true, but only partly. You can limit some company-specific risk, but the most important thing is how different the stocks are from each other. How do stocks respond to different market conditions? Equities that are linked move in the same direction, while stocks that are not linked move in opposite directions. For example, a portfolio of only high-growth tech stocks would not be diversified because they tend to move together. This could make you more money in tech-friendly economies, but it also puts all of your eggs in one basket, which is a very risky thing to do (the tech basket). Diversifying your portfolio means putting your money into different types of assets (stocks, bonds, real estate, etc.) so that you can make money in almost any situation.

What does diversifying a portfolio mean, and why is it so important?

A diversified portfolio is a group of different investments that lowers the overall risk of an investor. Diversification is when you own stocks from different industries, countries, and risk profiles, as well as other investments like bonds, commodities, and real estate.

Myth 4: “Percentage gains and losses are the same.”

What's True:

They are not, and this is a simple way to trick you. This is why. If you think about it, the idea is that losses affect an investor twice as much as gains. You might think, "If I'm up, I'm good; if I'm down, I'm really sad." But to get back to flat, there may be times when there is a 40% loss followed by a 67% gain. This shows that it is neither down 40% nor up 40% nor is it flat. From that point of view, you'll still be down.

Source: Vincere Wealth

As you can see, knowing how percentage gains and losses change over time is important because it lets you figure out your rate of return, or your net gain or loss over a certain amount of time. When you do the math, it's hard to believe that they are the same.

Myth #5: "Only rich people can invest."

What's True:

When people hear the word "investment," they immediately think of stock picking, day trading, and a lot of money. Investing has already started for anyone who has put even $20 into a retirement account. Many brokerages now offer fractional shares, which let clients invest as little as $5 in a stock of their choice. This lets you share in the same percentage gains as someone with more money to invest.

Myth #1 says that investing shouldn't be like gambling. If you're just starting out, choose something that makes you feel like you're making a steady and continuous contribution. Because of how money works, you can't compare how much you can get from a savings account to how much you can make by investing that money instead.

You have to spend money to move forward and reach your goals.

Myth #6: "One dollar today is not the same as one dollar in five or ten years; you need a lot of money to start investing."

What's True:

It is not true at all. People think that if you want to be a good investor, you need to have a lot of money. You don't need $1 million to start investing in the right way. There's no need to even have $1,000. You only need a small amount of money and the right amount of confidence. You can get the snowball rolling with a small automatic payment, but saving early will be much more important. You should start investing early and keep investing. When you first start investing, it will be more important to save something, anything, to build up your savings than to get good returns on your investments.

Wrapping Up

Investing isn’t as complex, time consuming or risky as you may assume. At Vincere Wealth, their team of experts can help you put together an investment portfolio that suits your financial needs. And the younger you start, the more time you have to build your wealth over the long term.

So what are you waiting for?! Talk to one of their advisors today.

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