If you’re new to the world of investing and you’re starting to build your first portfolio, you may feel a bit intimidated. From the outside, there are many myths and misconceptions about investing, all of which can make you feel like it’s just too hard, complicated, or scary to get started. However, some of the biggest investing myths have been resoundingly debunked over the years, meaning that there’s no need to let them stop you from pursuing your financial goals.
Here are four myths that you should disregard as you develop your investment plan.
Myth #1: You need a lot of money to become an investor.
One of the biggest barriers to investing is the misconception that you can only become an investor if you have a lot of money to begin with. Actually, a wide variety of brokers offer apps, websites, and programs that are specifically geared toward investors who don’t have huge amounts of capital. With some programs, you can choose to commit as little as $100 per month, or even automatically round up and invest your purchase amounts. Of course, it’s important not to overlook transaction costs and other fees (to avoid fees from adding up, it can sometimes make sense to invest more rather than less at one time), but even so, it’s perfectly possible to become an investor with only a modest amount of money.
It’s also important to remember that investing any amount of money, no matter how small, can still make a big difference over the long term. Smart investing is all about regularly setting aside even small sums, which can add up to a surprisingly sizeable nest egg. For example, assuming a 7 percent annual return, someone investing just 5 percent of a $30,000 annual income will still end up with over $150,000 after 30 years.
Myth #2: You need a lot of knowledge to become an investor.
Investing isn’t just for experts. While it’s certainly helpful to have some basic information to help you decide which investment choices are best for you, this doesn’t mean that you need to have expert knowledge in how the stock market works before you can purchase any investments at all.
Instead, it’s a good strategy to hone your understanding of just one small part of the market (you can find a wealth of great information on your chosen topic readily available online) and then let that specific knowledge guide your decisions. If you choose to go this route, you’ll be modeling yourself after one of the most successful investors of all time: Warren Buffet. Unlike many other professional fund managers, Buffet sticks to what he knows and doesn’t claim to be an expert on everything. Instead, he chooses to invest the bulk of his portfolio in just a handful of companies.
Myth #3: Investing is too risky.
There’s no such thing as a completely risk-free investment, but what first-time investors don’t always understand is that they are in complete control of how much risk they want to take on and when. It’s true that certain types of investments can be riskier than others, but you need to keep in mind that there’s no reason for you to put your money in those options if you don’t want to.
If your goal is to minimize risk as much as possible, there are plenty of investments, such as bonds or dividend stocks, that provide more modest returns while offering significantly less risk than other options. A great rule of thumb for new investors is this: if you don’t feel comfortable, don’t do it. (It really is as simple as that!)
If you’re still reluctant to take on even a modest degree of risk, consider the fact that not investing may be riskier than investing, given that most savings accounts accrue interest at a lower rate than the rate of inflation. This means that if you choose to keep your cash in savings rather than investments, you may be losing money over time.
Myth #4: The goal of investing is to beat the market.
This persistent myth springs from a fundamental misunderstanding about what the primary goal of investing is or can be. Contrary to popular belief, investing is not a get-rich-quick scheme. Rather, for the vast majority of investors, it’s about meeting your long-term financial goals and setting yourself up for a secure future. Therefore, the question you should be asking yourself as a first-time investor is “Why do I need to beat the market, anyway?”
Statistics show that over time, market volatility balances out and trends in an upward direction. In fact, as a whole, the stock market has yet to lose value over any given 20-year period. So, all you need to do is adjust your vision from the short term to the long term, and chances are good that you and your finances will come out on top.