Myths about Investing that we need to get over with today!

We need a huge amount of money to get started 

We need money to start investing, true. But we do not need to be a hotshot with loads of money to get started. Investing a modest amount every month can result in major savings upon retirement. Various avenues can be used as a starting point -Mutual funds, ETFs or even fractional shares. We don’t need to be rich to start investing!

Investing is for experts or professionals only

One of the biggest myths about investing is that it is highly complicated and should be left to the experts only. Though experts are highly knowledgeable in the investment space, they do not consistently beat the performance of the overall stock market. In other words, Index investing can be very rewarding. The graph below shows 35-year compound annual growth rates between January 1916 and 2016. During these years, we witnessed two World Wars, the Great Depression, presidential assassinations, stock market crashes, and despite all of these events, there has not been a single period with negative returns by the index.

Investing is extremely risky

Going by the academic definition, risk is the price fluctuation over a discrete period, which should not matter to long-term, value investors. Investing comes with risks, but we can decide on how much of risk we can take. There are various investment vehicles available and we can invest based on our risk profile. If you are the conservative type, you may want to invest in Municipal bonds or Inflation protected bonds. But what we also need to keep in mind is that, in case the stock market has gone down in value, it has historically always rebounded.

Investing money is as good as gambling

We can never have a “professional” gambler who mostly wins. But we can have a seasoned stock investor. With the right amount of research, selection of stocks based on your risk profile, and diversification and hedging strategies can help you grow your money. Even in cases where you think the market has turned sour and there are no hopes of a positive turnaround, you can use the stop-loss to your advantage.

A good past performance guarentees good future returns

It is enticing to buy an investment which has done very well previously. By and large it seems that if a stock has produced a strong return over a drawn out stretch of time, we can look forward to it doing well. Yet, there is literally nothing to keep an investment from failing even after it’s given us quite a good period of awesome returns. So it does not make sense to invest in a stock merely based on its past performance alone. It is always good to look beyond past performances, into the health of the company and its future growth prospects before we make a decision.