Despite hearing about the necessity of and benefits of investing, many people do not put any of their money in stocks and bonds as a part of their investment portfolio. In most cases, this is because they believe one or more of the various myths that surround the stock market. However, investing in a company is beneficial if you separate myth from fact.
Myth: Starting a Stock Portfolio Is Too Hard
When asked why they haven’t invested in stocks and bonds, many people answer that it seems too hard to do. In reality, creating a stock portfolio is easy, especially now. Not only are more companies working with people who wish to invest smaller amounts of money, but you can also try it on your own via online websites. You don’t have to be an expert in managing money, especially when working with a professional who trades for a living.
Myth: Only Rich People Have Stocks and Bonds Portfolios
Thanks to movies and TV shows, a lot of people assume you have to be rich to have investments in the stock market. This may have been true decades ago, but you no longer need the thousands of dollars. Today, most people can begin creating a solid investment portfolio with just a couple of hundred dollars.
A mutual fund allows a new investor to have money in several types of investments at once. However, if you go this route, it’s important to look at the transaction fees. Depending on how much they are, it may be more lucrative to wait until you have a larger sum to invest instead of investing each time you have a small amount of money.
Myth: The System Is Rigged Against You
Some naysayers avoid investing because they incorrectly assume it is just like gambling and that the system will be rigged against them. There’s an important difference, though. Gambling was created with the idea of winning because other people are losing, but investing focuses only on your money and is completely independent of what anyone else invests.Additionally, purchasing stocks is a straightforward and transparent process as long as you work with a reputable firm. If your firm doesn’t explain things to you, find a new one.
Moreover, it is important to keep in mind that stocks and bonds work in cycles. While it’s true that sometimes there will be downs, it’s also important to remember that it will very likely cycle back to an average return. If you sell as soon as it crashes, you’ll lose money you otherwise would have gotten back when the market cycled back up.
Myth: You Have to Invest in Dozens of Companies
This is another myth that seems to carry over from gambling. Just like people mistakenly believe they are more likely to win at slots if they bet all 20 lines, they also believe they’re more likely to “win big” if they invest in many companies, usually in industries they know nothing about. In reality, a solid portfolio will consist of several investments, but they should be in companies and industries in which the investor is familiar.
For example, someone who knows a lot about technology but nothing about sports probably wouldn’t want to invest in a cricket equipment company. On the other hand, a foodie with no knowledge of women’s fashion trends should probably stick to restaurants and other food-related companies.
Myth: You Should Invest in Only One Company
Some people do the exact opposite of investing in too many companies by investing in too few. The stock market is a place where the old saying “don’t put all your eggs in one basket” truly applies. Any investor who offers a guide to high touch personal service will tell new investors to put their money in more than one “basket.”
Myth: Past Performance Indicates Future Performance
A large number of new investors assume that just because a company’s stock has done well for a few months—or even for a year or two—it will continue to do so, but a company’s past performance has nothing to do with how well it will do in the future. Even a company that has done solidly for many years can have an unprecedented incident that crashes its value.
Investing your money in stocks and bonds is a worthwhile way to create wealth for you and your family when done correctly. Whether you choose to go it on your own or hire an investment firm to help you, be sure to keep the reality of these myths in mind as you get started.