Common Investing Myths, Debunked
by Debamalya Mukherjee Finance 17 August 2023
The investment world is full of conflicting opinions.
Some experts say annuities are the best way to turn a profit. Others advise avoiding annuities completely. Similarly, you might hear one expert claim you should invest 20% of your portfolio in precious metals and another says to invest only 5%.
Deciding who to trust can be difficult if you’re new to investing. But the more informed you are about the practice and its infinitely variable conditions, the easier it will become. Here are some of the most common investment myths and why they’re untrue.
1. The Best Investments Are Popular Companies
Many new investors gravitate to big, familiar companies like Meta, Starbucks, and Target when choosing where to invest. Because these companies are well-known and successful, they might seem like great buys, and that may sometimes be the case. However, it’s not always true.
The problem with investing in mega-popular companies is that everybody else has the same idea.
As more people buy, the price of stock goes up. In many cases, this leads to a stock becoming overvalued. Unless you’re an expert investor, selecting individual stocks to invest in (as opposed to diversified funds) can be incredibly risky.
2. Sustainable Investing Sacrifices Returns
Some people believe that when you choose investment strategies that support environmental or social health, you pay for it with reduced returns. This is demonstrably false — research indicates that sustainable investing doesn’t reduce profits.
Because so many investors want to support environmental and social change, some private equity firms, like Cyrus Nikou’s Atar Capital, focus primarily on environmentally and socially conscious investments. When you invest carefully, you can gain respectable profits and make a positive difference in the world at the same time.
3. Some Investments Are Completely Risk-Free
It would be nice to be able to invest your money with guaranteed returns and no risk of loss. Although some people may falsely claim that some investments are risk-free, the simple truth is that no investment is without risk.
That being said, some investments are riskier than others. For example, US savings bonds and certificates of deposit (CDs) generally present little risk, while exchange-traded funds (ETFs) and individual stock investments tend to be higher-risk options.
To build the right portfolio, you must determine your personal risk tolerance. High-risk investments typically yield the greatest rewards, but they also can lead to catastrophic losses if you don’t play your hand carefully.
4. Investing In Stocks Is A Surefire Way To Get Rich Quick
You’ve probably heard at least one story of someone who risked everything they had on the stock market and walked away with a fortune. As appealing as such stories are, they’re also incredibly rare. And in most cases, you only hear about the astonishing successes — not the crushing failures.
While it’s possible to get rich quickly by investing in the stock market, you have a much greater chance of losing your shirt. Keep in mind that the people sharing rousing success stories are usually either professional traders or amateurs who have put in extensive time analyzing and understanding the market.
5. Investing Is Only For The Wealthy
Perhaps you’ve heard that you should only invest money you’re willing to lose. Naturally, if you don’t have a massive cash flow, you might think investing is only for those with money to burn.
However, a quick look at the data is enough to refute this common belief. In 2019, the Federal Reserve’s Survey of Consumer Finances found that about 53% of American families owned stocks.
Of course, you shouldn’t sink your savings into investments. But even if you invest only $50–$100 each month, that small amount can build over time.
6. Timing The Market Is A Smart Strategy
When an investor times the market, they predict the best time to buy and sell given stocks. If you can do this successfully, you have the potential to see great returns. In most cases, however, timing the market leads to a handful of successes and a long list of failures.
After all, timing the market is essentially predicting the future — no one can do it with any kind of certainty. Instead, the best long-term investors hold their investments through the minor fluctuations that would cause most would-be market-timers to sell.
Dive Into The World Of Investing
Whether you’re a brand-new investor or an old hand looking to strengthen your portfolio, learning more about the investment world can be a real adventure. However, developing a sound investment strategy can pose a challenge for the lay trader.
When you work with a financial advisor or experienced trader, you’ll get the guidance you need to build a strong, stable portfolio.