Don't let the stock market intimidate you with all it's financial jargon and Wall Street “guru's.” Most of the myths about the stock market are mere misunderstandings that were derived from investors decades ago! Here are six myths about the stock market and the reality behind them.
Myth #1: You Have to Be an Expert to Invest in Stock
NO, YOU DON'T!!! Period. Investment myth debunked…
Did you know that every time you go shopping at a store, you are indirectly investing your money in that company? You are giving them your hard-earned cash for their product or service that you believe in and trust in. In fact, by purchasing that product or service, you are saying that you believe that the value of that product or service exceeds the “$X” you paid for it.
For starters, this same idea directly applies to investing in the stock market. You put your money where you believe in the most and over time get a better return than what you paid for it.
A Stretch of Logic? Consider this…
For those of you that believe this concept may be a stretch of logic, here are a few more reasons that prove no expertise is required to invest:
- Almost all your investing can be managed online with expert help as needed…for free!
- Most investment companies provide you access to expert made portfolios or funds that you can invest your money in, taking the educational piece out of the equation for you.
- With a trusted robo-advisor, you can answer just a few questions about your investing experience, risk tolerance and knowledge, and automatically have an investment portfolio customized to you based on your answers.
- Exchange traded funds (ETFs) are an easy way to diversify your portfolio. One share of an ETF is comprised of tens, hundreds and even thousands of stocks at once! You can be completely new to investing and pick an ETF that focuses on the total stock market like the S&P 500 and stash all your money there and be well diversified and out perform the majority of other investors already.
- By investing in Mutual Funds, you are putting your money in the hands of a professional who can do all the leg work for you. All you need to do is pick a fund that fits your investing objective and personality and pick one with a good track record of returns. No expertise required!
Reality: Investment companies allow new investors to have access to expert made portfolios for them based on a few investment questions. No experience required!
Myth #2: You Need A Lot ofMoney
An investing myth that has long been floating around is the false assumption that you need a lot of money to invest in the stock market. It used to be that you needed thousands of dollars to open an investment account but let’s be real here…that was decades ago! Today, you can open an investment account with no minimum balances required.
Some might argue that you need a lot of money to purchase even one share of stock for some companies like Amazon, for example. One share of Amazon can cost upwards of a couple thousand dollars. The introduction of fractional shares investing eliminates this entrance barrier by allowing you to invest in any company based on dollar amounts, not the number of shares.
Reality: You can open an investment account with no minimum balance and start investing in any company with as little as $1.
Myth #3: The Stock Market Is Too Risky
Don't get me wrong, I'm not saying that investing in the stock market is a sure thing. There is always risk involved. Heck, there is even risk in driving down the road to your local grocery store too!
The common misconception is that there is no way to reduce the risk of investing in the stock market. Investing in any vehicle, whether it's the stock market, real estate, education, cryptocurrency, bonds, small businesses, etc. always has risk.
Consider the following facts about the stock market
- The average total stock market return each year is 9% (based on the history of the S&P 500 index)
- 100% of every stock market recession or down market has bounced back to exceed its original value
- Any risk in the stock market is drastically reduced by a properly diversified portfolio
Perhaps you've heard the saying “Don't put all your eggs in one basket…”. This simply means spread out your money among multiple companies or investment funds rather than hoping just one will make you rich. By doing so, chances of all the companies going to zero value is almost nonexistent. If one company is performing bad, you'll likely have a handful of other companies performing well to offset each other.
Reality: A diversified portfolio reduces your market risk. The total stock market has produced an average positive return of 9%.
Myth #4: “I’m Too Young/Old to Invest in Stocks”
“I'm too young…” or “I'm too old…”, they both seem like the universal answer to any question we want to delay because of lack of knowledge or fear. I'm sure you've heard some of these phrases before:
- I'm too young/old to have kids
- I'm too young/old to buy a house
- I'm too young/old to get married
- I'm too young/old to go back to school
- I'm too young/old to learn to play the [instrument]
- I'm too young/old to learn ANYTHING…
The list is endless. But I’m sure you catch my drift here. When making a decision, it's human nature to want to make sure that everything is in perfect order before starting. But in reality, EVERYTHING is NEVER in perfect order before starting, and thus we never start!
Warren Buffett himself said “Someone's sitting in the shade today because someone planted a tree a long time ago.” When's the best time to plant that tree? 30 years ago!
Reality: Saying I'm too young/old is just an excuse to delay getting started. The truth is that the sooner you start investing the better.
Myth #5: “I’ll Get Rich Elsewhere…”
I get excited when I hear about entrepreneurs with new ideas that could change the future for the better. I'm one of those dreamers myself! The problem that often lies within people with this entrepreneur mindset is that they often bank all their wealth being created from “making it big”, whether that's starting a small business, becoming a professional singer with a hit album, becoming a professional athlete, etc.
By no means am I discrediting anyone's potential or dreams here, in fact I'm promoting your ability to do it! But much like investing, you need to diversify financially for the unknown circumstances ahead!
One real way to give you the peace of mind, financial confidence and even safety net of achieving your big dreams is having a regular amount of money each week or month being invested automatically in the stock market. Be that just $1, $10, $25 or $100, every little counts!
Beware of “Get Rich Quick Schemes”
Get rich quick schemes are found left and right on the internet, and some of them have very compelling offers too! If it sounds too good to be true, then it is probably too good to be true. We will all learn that one way or the other, either by listening to this advice or by experiencing it firsthand by getting caught up in one of these “Make Money Fast” scams.
Sure,there are ways to “Get Rich Quick” but there are not ways to “Get Rich Easy”. If you see the words quick and easy in one offer, run and never look back!
With hard work, a lot of help and the right minds put together, it is possible to get rich quick. Quick meaning within 5-10 years, and in RARE cases 1-3 years. It can be done, usually through building a business, product or service that can later be sold for a major profit, or something similar.
Reality: Don't bank all your money being made from your great idea. It may or may not pan out as planned but investing regularly is a sure path to riches over time and can serve as a great backup, safety net, sense of confidence and addendum to building your wealth.
Myth #6: “The Economy Is Going to Tank!”
Fearing whether the stock market is at a high or may go lower is probably the number one fear among investors in general. The problem with this fear is it is directly tied to one attempting to time the stock market. When you try to “time the market” you attempt to buy stocks at low prices and sell them at higher prices based on economic activity, and generally in a shorter term (within 1-24 months).
A time-tested truth is that no one has ever been able to time the stock market and get it right on a regular basis. Sure,there are one off scenarios where one gets it right with a little luck but predicting the stock market is like saying you have a crystal ball that tells you the future.
Quoting Warren Buffet again, he said “If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” That's coming from the most successful investor of all time. How does that apply to whether a recession is about to hit? Your investment decisions should be based on a long-term mindset.
The reality is, a recession will likely happen during the time you are invested, but if you invest for the long term you will still make money. Timing the market is a fictional game that no one wins. People have been saying a recession is coming every year since the existence of the stock market but think of how much growth they've lost out on!
Reality: No one can time the market, and no one knows when the next recession is coming. Recessions will happen, but they have always bounced back and exceeded their former values.