Average joes have no problem spending over $1,000 on the latest iPhone, but when you ask them to invest that amount of money, they are scared to the bone. They think investing is a very technical skill and requires a very in-depth knowledge that only Wall Street investors would have. However, while the people trading on the well-known New York street do have plenty of brain matter on the well, matter, they are no different from the average person; they do not have anything that we “average joes” cannot learn.
For the record, you do not have to be a professional to come out on top of the investing game. That said, anyone can start investing today. So continue reading to find out some of the most common investment myths out there, which will hopefully give you the confidence to start growing your wealth.
1. Investing is just like gambling.
Walk into a casino and put all of your life savings on black, then you have a fifty-fifty opportunity of multiplying your wealth by a factor of two. However, that means that on the other side of the coin, you have the same degree of probability of losing everything that you have worked for. Unfortunately, people have this misconstrued idea that investing is all about putting all of your money and then losing it all or becoming rich.
The reality of investing is this: most of the profits are minute. If your portfolio consists of various financial instruments such as stocks, bonds, real estate, index funds, and royalties, then it is not probable that you will lose everything. Although a diversified portfolio may not make you rich overnight, that is what investing is all about – investing is about growth over time measured in years, not just in one or two transactions.
2. It takes a lot of money to start investing.
Every day, billions, if not trillions, of dollars are in circulation. Hence, it is somewhat natural for people to conclude that it takes a lot of money to get started. No, that is not true – if you have a small amount of savings, then you can participate and start expanding your pool of money.
If you are interested to invest just a small portion of your wealth, a good starting point would be to invest in index funds. Index funds are perfect for novice investors because they do not require any specialised knowledge to start their investment journey. Chances are, you may not outperform the market and become extremely wealthy in a couple of weeks with this method of investing. However, if you are looking to develop a steady stream of side-income for life, I cannot recommend you invest in index funds enough.
3. It is a short-term game.
If you aim to become a millionaire overnight, sorry to say: investing is not for you. Investing is not a short-term game – it is the complete opposite. The trick is to have a slow and steady approach when it comes to letting your investments grow over a period of time. The most challenging part here is staying patient, a habit not many people possess because humans naturally tend to pursue short-term pleasures over long-term benefits. So, zoom out and think about your investments in terms of decades, not years. It is not fun, but it is the wisest approach.
4. Investing in the most prominent firms is the best approach.
When beginner investors observe where to invest their money, they tend to lean towards the world’s biggest companies, the ones that are worth hundreds of billions in market capitalisation and likely will remain so in the future.
However, this is not always the most intelligent way to go. Twitter, for example, is worth billions of dollars, but it has shown time after time that it is not necessarily a strategic place to invest your money. In most cases, small caps with steady growth are better places to invest your money.
Final 2¢: Diversify your portfolio and wait.
Having a solid, diversified portfolio and waiting for your money to double in ten years may not be the most fabulous option. However, investing is a dynamic rollercoaster ride, filled with staggering highs and lows and bold, active risks. Realistically speaking, all it takes is picking a few index funds to invest your money in and leaving them alone while they help you make money. When you separate myth from fact, investing is not risky, and it is simple.