There’s a great deal of confusion out there surrounding the topic of investing and many of those myths are keeping average people from investing. While you might think the vast information found on the internet helps dispel these myths, it really provides a breeding ground for more misconceptions to gain popularity. Taking the time to look for the truth behind these myths can help you prepare more fully for your first investment experience.
Myth 1: You Need a Fortune to Get Started
It’s a common belief that your investment won’t perform well unless you have thousands of dollars to invest. This simply isn’t true. You can buy shares in many stocks for under $100. Since you can expect an average annual return of 7% on your investments, holding onto those stocks for 40 years can earn you up to $1,500. While investing more will certainly present the potential of earning more, smaller investments can help you grow your capital.
Myth 2: You Should Cash in at Retirement
The idea behind this myth is that seniors will need all of their savings to pay their living expenses at retirement and holding onto stocks can risk that nest egg. However, if you follow the 4% rule, which dictates withdrawing 4% of your savings for each year of retirement, you will likely need to continue earning more after retirement. The best strategy is to work with a freelance consultant in determining which stocks to hold onto and which ones to cash out. This will enable you to reduce the risks, while still earning on a few select stocks.
Myth 3: Stocks Aren’t as Safe as Bonds
People assume that bonds provide more stability over stocks and that may be true in a short-term assessment, but it proves false over a longer stretch of time. While the stock market fluctuates from month to month, it does remain constant when examined on a year to year basis. Looking at Standard & Poor’s 500 index, the market has stayed fairly consistent, remaining between 8% and 15% since 1926. This suggests a diverse portfolio of premium stocks can perform just as well as investing in quality bonds.
Myth 4: Buying Stocks is as Risky as Gambling
While much of the gambling experience relies on luck, the same isn’t true of investing in stocks. If you make poor choices that involve investing in high-risk stocks for a quick return, you will likely face the same odds that any casino would provide. However, taking the time to choose high-quality blue chip stocks and researching the potential investment will help you earn over time. In most cases, you can expect an 8% annual return. You won’t get that at any casino.
Myth 5: Past Performance Indicates Future Returns
Many investors cling to the idea that a stock which has performed well in the past will do so again. While that can be true in some cases, there’s no way to know when that stock will rise again, or if it will at all. You may end up losing your savings before that stock pays off. The best approach is to plan for a long-term investment with a quality stock and expect that you may see some fluctuation throughout the years.
The best way to dispel myths is by learning about the market and researching individual stocks on your own. You may even choose to work with an advisor who can help you learn more about investing. As you experience investing first hand, you’ll begin to see what is true and what is myth. Only this type of experience will help you learn practical lessons, so you can grow your wealth throughout your lifetime.
Author Bio: Douglas Pitassi is a freelance writer and small business blogger.