The reason why the investment market is so unique is that almost everyone knows what it is, and almost no one understands how it works. It gets even worse. You see since it’s so popular in popular culture/cinematography, a lot of people have illusory scenarios of how this should work.
In other words, people believe in common popular culture tropes and never question them, even after they start investing on their own. In order to help you avoid these, here are the top five common investment myths that you, yourself, probably believe.
1. Only risky investments are worth your while
The theory is that if you invest just a bit of money, it doesn’t pay off to play it “safe.” In other words, imagine if someone could tell you that you can gain 1% on your investment in a year. If you have just $100 to invest, this means earning $1 for waiting a year. On the other hand, if you invested $1,000,000, you would have earned $10,000, which is far from negligible.
The bottom line is that safe investments are always smart. Unlike keeping your money in a bank (or in a mattress), this type of investment is a hedge against inflation. Moreover, it does keep your money safe.
We’re not even talking about investments that sound safe. We’re talking about 500 leading companies in the US, the S&P 500 index. By investing here, your investment is spread across these 500 companies. Sure, one or two of them will fail, but the rest will rise, and it will, more or less, even out. Can they all fail? Sure, but if all 500 of these companies fail, you and the rest of the planet will have far bigger problems than the loss of your investment money.
2. The stock market is too complicated
One of the most ridiculous statements is the one about the stock market being too complex. While this is technically true, it has little to no bearing on your decision to invest. How? Well, do you understand how the Internet works? What about the electricity? Yet you use them every day.
In order to actually start using these financial markets, all you need to do is demystify a small portion of its top layer. You need to understand how the brokers work, what the best exchange apps are, and how to trade (from a technical standpoint). You also need to understand which KPIs to track and how to do your research (this part is, by far, the most important).
Those who want to go even deeper should learn about options like copy-trading or learn a few strategies in order to adopt one.
Keep in mind that while there’s no limit to how much you can learn, there’s only so much knowledge that’s actually useful to you. The rest will be relevant if you decide to commit harder or if you find this sort of trivia to be relevant to your activity.
3. Diversification is done out of fear
This one is the most ridiculous one yet, but it’s incredibly persistent. You see, it’s not that you don’t believe in your investment. You’re just honest about the fact that you can’t see the future (no one can), and you’re doing something to keep yourself safe.
The truth is that you don’t know which asset is going up. This is why you don’t want to put all your eggs in a single basket.
In an ideal world, you would know which of these assets will increase in value, and you would put all your money into this single asset. In reality, you just don’t know, and if your gut feeling is too strong and you go with it, you’re not acting like an investor but a gambler. You’re not investing; you’re playing a lottery.
Most importantly, you need to know how to diversify. You should diversify based on factors and not asset classes.
Ideally, you’re looking for assets that have low correlation. This means that when the market conditions change, it won’t affect all your assets in the same way. This way, whatever comes next, you’re ready to meet it head-on.
So, you need to pick your main investment venue but also spend some of this investment money on commodities.
4. You can get rich overnight
People who believe that you are diversifying out of fear probably also b believe that, in the investment world, you can get rich overnight. In their minds, you’ll discover the next BTC, buy the stock at $10 each, and sell it at $100,000 each in a few months.
Just think about it: these people, even if they did buy BTC at $12, probably sold it at $100 and believed that they made an incredible profit. And they did; who wouldn’t consider earning 10x on your investment a great move?
The worst part is that these people make all the worst conclusions, as well. Just consider our previous example for a second. Just because their investment of $12 reached $60k at one point, they would assume that this can happen again and again. So, the next time their modest investment increases its value ten times, they’ll choose to wait because they believe that it will increase one thousand times.
The truth is different. If you’re day trading, it will take you so many successful trades in order to earn the money that you’ve set out to earn. If you’re position trading, it will take months and years of trading. Either way, you need to arm yourself with patience.
5. It’s too early to invest
If you ask a lot of people, it’s just not the right time to invest. Sure, sometimes, this is what they genuinely believe, but most of the time, it’s nothing more than procrastination.
First of all, there are a lot of people who believe that they shouldn’t start investing because they don’t have enough money. The truth is that you can buy individual stocks and crypto, as well as parts of stocks and crypto. You don’t have to invest in an apartment or a commercial property directly. Instead, you can invest in real estate ETF.
Those who want to find a way, are those who don’t find an excuse.
It’s always better to start early, regardless of whether we’re talking about investing in your 401K or your investment portfolio.
Then, when it comes to the excuse that the market is bad, the market is never bad all over. If the real estate market or stock markets are doing poorly, you can always invest bearishly. You could also find an asset class that’s actually overperforming and invest there.
If you start coming up with excuses, it's a never-ending process.
The sooner you get through the myths, the sooner you’ll reveal the truth.
The worst part about these myths is that popular movies and TV shows have engrained them into your consciousness. They won’t be as easy to dispel, even after you join the investment world yourself. Still, just understanding the falsehoods of the above-listed five myths will already set you ahead and help you make your first steps toward the truth. After all, your money’s at stake and you can never be too careful with that.
