So you’ve worked hard these last few months, and it’s not been in vain. You’ve stacked up an impressive amount of money in the bank. It’s time to start thinking about making this money work for you by investing. To invest wisely, the first step you should take is to do your research and learn about investing using limited funds. This article will analyze a few myths and misconceptions you must never fall for when investing.
1. You Can Only Buy Low and Sell High to Make a Profit
Any reputable financial advisor like Motley Fool will tell you there are many ways of making money through your investments. The best part is you do not always have to buy low and sell high to grow your wealth. Buying high and selling low is not a universal law for making money. Often, strong stocks have the potential to keep gaining value, so buying high and selling higher is also a good plan.
2. You Can’t Beat the Market
When you start investing, it’s easy to think that the investing game is rigged against you. That is not true. The market does not operate like a casino where the house always wins. Data collected over time suggests that the market gains about two-thirds of the time and loses a third. This means that you have more chances of winning than losing, unlike your odds of winning at your local casino.
3. It Would Help if You had a Lot of Money to Get Started
Long ago, you needed to have a fortune to your name to be able to invest in the stock market, but things have changed now. You can invest with as little as $100 and grow your portfolio. For more advice on investing with limited funds, seek out the services of an experienced financial advisor.
4. That the Trading Market is a Casino
The stock market is not like a casino where the odds of losing are higher than winning. In investing, as long as you make informed decisions with help from financial advisors like Motley Fool, you will have the upper hand increasing your chances of making returns on investment. You can always manage your investments to make good returns on investment.
5. Blue Chips –Stocks are the Only Stocks Worth Your Dollars
Blue-chip stocks are the shares of companies with a good track record. They are more often than not covered by investors and will sell out in no time. There is no problem with owning a few blue-chip stocks, but you shouldn’t put all your eggs in that one basket. The problem with blue-chip stocks is that they are usually reasonably priced and rarely trade below fair value. The result of this is that they seldom beat the market despite their returns being steady.
6. You Can Only Buy Stocks With a Low PE
Myths and misconceptions take root faster when they offer simple solutions to incredibly diverse investing complexities. There is no relationship between PE ratios and possible returns on investments. You are best off not using price-earnings rations as a basis for making crucial investment decisions.
7. Stocks are Riskier than Bonds
Bonds offer investors lower risk, and lower rates of returns compared to stocks. As an investor, you are looking to make more money which will not happen if you invest in bonds.
8. Diversifying Your Portfolio is a Full Proof Way of Evading Risk
One thing you need to know about investing is that there is no way to evade risk entirely. You can always try and implement strategies to lower your risk but always expect something to go wrong; Murphy’s Law.
9. It Is a Good Idea to Sell Stock Holdings on a Seasonal Basis
Some investors may believe that it’s profitable to get out of the market for a few months in the anticipation that, just like every other year, the stocks will be flat. This notion is especially prevalent during the summer months.
10. Avoid Market Fluctuations by investing in Index Funds
Research shows investors believe index funds are stable. More stable than actively managed funds. Other investors believe that stock index funds can protect them from market fluctuation. The truth is you are never truly safe from market fluctuations. The best way to avoid market fluctuations is to invest using the most recent information.
11. It Would Help if You Switched to Bonds When You Retire
Some investors believe that they have to shift their assets to bonds as they age. You do not have to subscribe to this myth. Asset inequities often decline right before retirement age. It is essential to know the difference between investing in stocks and bonds before reaching retirement age so you know how to protect your investments.
12. Gold is the Safest Investment
Contrary to popular belief, Gold may not be the perfect investment. The value of Gold has dropped an estimated 7% since 2018. Gold has the potential to be a decent hedge but buying the precious metal involves allocating funds for safe storage.
The Bottom Line
There is no easy way out when it comes to investing. You cannot avoid risk altogether, but you can implement strategies to minimize the financial impact if the market drops. Always remember to ask for financial advice before investing your hard-earned money. If you fall for these myths and misconceptions you stand to lose your investment.