Investing is scary. There are so many unknowns and moving variables that keeping track of everything while holding on to your investment accounts can seem like a daunting task. Not to mention that there are so many self-proclaimed experts that are all touting their own “winning strategy” that it’s hard to tell what you should believe and what might just be a load of nonsense.
One of the most intimidating things about investing is how many things there are out there to invest in. You can invest your money in Stocks, Bonds, Mutual Funds, Futures, you can even invest Chinese Yuan and other foreign currencies if you are so inclined. Here are 7 of the most common investing myths debunked to hopefully help you feel more confident in investing and making your money work for you.
While investing is not for the faint of heart, there are some very prevalent investing myths that we can debunk for you today, and hopefully, help you see that the world of investing is not necessarily as scary as it seems.
Stocks Are Riskier Than Bonds
It is a common belief that stocks carry more inherent risks than bonds. This is not necessarily the case. A better way to put it would be that stocks are more volatile than bonds. Prices fluctuate much more in the stock market because the stock price is affected by more factors, but this also leads to bigger potential returns.
Invest in a Target Date Fund and You’re Set
Target Date Funds are sometimes called “set it and forget it” funds. Basically, you are giving your money over to an investment professional to invest in a set portfolio over a given length of time. Again while there is a smaller risk factor for these types of funds, there is less of a chance for diversification, and you are subject to the investment professional’s performance for gains.
Diversification Will Protect Your Portfolio
While you shouldn’t put all of your eggs in one basket, spreading your money over too many stocks won’t work either. Ultimately you won’t have a big enough pool of shares to capitalize on the rising stock prices unless gains are astronomical. It’s much better to make a few well-informed investments that a hundred leaps of faith. However, you should consider the risk/reward ratio before putting all of your eggs in one basket.
Avoid Market Fluctuations by Investing in Index Funds
Index funds are as vanilla as it gets. Basically, you are investing in the major market indexes like Dow Jones, or Nasdaq. While this generally seems safer because the high price stocks outweigh the low prices, you can make much more money focusing on growth stocks if you do your research.
Sell in a Volatile Market to Protect Yourself
Volatility is your friend. Volatility means that the stocks prices are moving, and while this may mean that your prices are going down, this gives you a unique opportunity to short sell and make money while the stock price is going down, and you can even buy the stock back at a lower price once it turns around.
Safe investments Are the Way to Go
CD’s, Savings Bonds, and Money Market accounts are definitely safe investments. They rely on compound interest in order to make money for the investor. However the growth rates on these are so abysmally slow, you will make many times more money over the long haul simply investing in the markets than investing in “Safe” investments.
Buy Low / Sell High
This is an axiom you will hear over and over again. While buy low and sell high is definitely the way someone makes money, a better axiom would be buying high and selling higher. Stocks prices are mainly based on investor confidence, and so when a stock price rises, it generally continues to do so for a bit until it plateaus.
While the world of investing has a steep learning curve, investing is not nearly as scary as it’s made out to be. While there is a host of myths and folklore about strategies and tips, solid research and knowledge and some decent investment apps will get you into the investment game on solid ground.