Investing is not black magic, but it definitely has that image among many people. With so many moving parts and unpredictable possibilities, it’s no surprise that myths are common to invest. Most people fall victim to these can myths and pass on second-hand information which can confuse or deter potential investors from investing at all.
However, things are not always as they seem. Here are 5 myths that you may believe in.
1. You Need a Lot of Money to Invest
Lack of funds is one of the main reasons people make for not spending. They imagine high powered Wall Street types with millions of dollars as the function of money at their disposal when they think about investors.
Yet anyone will spend it! Most investment companies have low, or zero, minimum requirements. Some people even use mobile apps to invest small as well as large sums — sometimes even spare change.
2. Past Performance Guarantees Future Returns
Contrary to common opinion, there is no indication in the past that a fund or stock is doing well in the future. Investing is not a sure thing.
For example, if you purchased $1,000 worth of stock from any of Silicon Valley’s (now) famous companies in the 1990s, your initial investment will now be worth a substantial sum.
But that doesn’t automatically mean that, if you buy $1,000 worth of the same stock today, you will be wealthy in 20 years. A successful investment is about a flexible approach to market uncertainty — and understanding the associated risks.
3. A 401 (k) is the Only Way to Save Your Retirement
Two primary types of IRAs exist, namely Roth and Traditional. Without paying distribution taxes, retirees can withdraw money from a Roth IRA, while conventional IRAs allow you to deduct your current qualifying tax payments, allowing you to claim a lower income.
You must pay taxes when you are retired and able to withdraw money from a conventional IRA, and there are conditions that must be met to withdraw tax-free from a Roth IRA. Note that, according to the Internal Revenue Service (IRS), there are additional restrictions and criteria for any form of IRA.
4. Investing is Gambling
Because investing has no guarantees, some people compare it to gambling. With gambling, when you pull a lever over a slot machine, you take an uncalculated risk.
Investing entails many unknowns and threats. But you make a calculated decision based on your understanding of these factors when you choose to invest.
5. Investing in Individual Stocks is Best
Don’t put all your eggs in one basket. Maybe you’re familiar with this old saying. By diversifying their portfolios and spreading their investments across a variety of stocks, many successful investors take their message to heart.
Of course investing also entails risks. But you could leave yourself open to losing everything if the company goes under, by choosing only one stock to invest in.
