7 Investment Myths…
So, let’s get to the bottom of some of these myths then.
1. It’s Too Risky
Yes, there are risks with investing. That’s why you always see the warning: ‘you may not get back what you invest’ or ‘past performance is no guide to future performance’. Very true words.
But too risky? Before you can answer that, we need to consider how risk works and what it could mean for you.
All investments can be categorised on a scale of risk. At the extreme end of the spectrum, you have your high-risk, volatile investments such as hedge-betting. These aren’t for the faint-hearted as the value of your original investment can yo-yo all over the place. This means you could gain a lot or potentially lose everything.
At the more sedate end of the spectrum, you can find some very low-risk investments, categorised as ‘cautious’. Invest into one of these and, although your investment isn’t without risk, its value wouldn’t be expected to fluctuate much. This means you could enjoy a much smoother, gentler ride over time but growth will be lower.
The key is to understand the risks involved and how can they change over time. That way, you can make an educated decision about how much risk is right for you.
But why take any risk at all? Simply put, it could give your money greater potential to grow than cash savings. That might not apply right now but, in the long-term, it’s true.
2. You Need to be Rich
This might have been true in the past but, these days, you can start investing with less than you might think. It’s now easier than before thanks to mobile apps, online fund platforms and online investment advice services.
I know using technology for investing isn’t for everyone but it makes it more accessible to more people. At the very least, being able to get online valuations is something most people find useful, even an old person like me!
Also, with technology, comes the ability for companies who provide investments to be able to do it cheaply which means they can afford to take on clients with lower amounts of money.
3. You Need to Lock Your Money Away
You’ve probably read that an ‘investment should be seen as a medium to long-term commitment’ or ‘you should aim to hold it for at least 5 years’. This is because the longer you hold an investment, the more chance you have of smoothing out the bumps.
This doesn’t mean you must physically lock your money away. With most investments, your money isn’t locked anywhere. Generally, you can access your money at any time.
Still, you shouldn’t treat an investment like a savings account. Withdrawing your money early could negatively affect your returns. You want to avoid being forced to sell when the markets are having a downturn, as your investments could be worth less than what you put in.
Ideally, you should have between 3 and 6 months’ worth of expenses saved in an emergency fund before you start investing. So, if your car breaks down while the markets have a wobble, you can use your savings to get it repaired. That way, you can leave your investments untouched and give the markets time to recover.
4. You Need to be an Expert
If you invest in shares, you’ll need to do your homework and keep your eye on the markets. That’s because if the company you invest in does badly, you could potentially lose money. The price of your shares will also be affected by supply and demand, interest rates and the wider economy.
But buying shares isn’t the only way to invest. Investment funds could be a good way to start. Buying into a fund is like buying a ready-made basket of investments. They spread your money across many different investments, which is like putting your eggs in lots of different baskets.
Funds can be less risky than buying individual shares in a single company because a lower return in one investment, may be compensated by a gain in another. Spreading your risk in this way is known as ‘diversification’.
Perhaps the best thing about investing in funds is they’re put together by a fund manager. An experienced investment professional, so you’re essentially investing in an expert to invest for you. As they manage things on your behalf, this leaves you free to spend your time doing something else.
5. You Need to Monitor Your Investments Every Day
Staying glued to the markets? You probably have other things you’d rather do with your time.
This is another reason why ready-made portfolios can be a good way to invest. They’re professionally managed to ensure they stay at your chosen risk level.
With a ready-made portfolio, you can invest and then pretty much forget about it. All you need to do is peek every now and then to see how it’s doing.
6. You Need to Know the Right Time to Buy & Sell
There’s a perception that to do well, you need to buy when stocks are low and sell when they’re high. Investors can spend a lot of time and energy trying to identify when a share price has bottomed out or hit its peak.
Yet there are so many factors influencing the stock market. Predicting outcomes is practically impossible. We’re all experts after the event!
The important thing is to start as soon as you can and invest for as long as you can. There will be some downturns, maybe even some bad years, but if you’re not forced to sell during a dip (see myth 3), you may be able to ride out any turbulence.
Before investing, ask yourself how long you’re prepared to invest for. The longer your timeframe, the more volatility you may be able to deal with because you’d have more time to recover from any lows.
7. Get Rich Quick!
Some people might suggest it’s easy to make money on high-risk investments. But don’t be fooled. Look at what happened with the Dotcom bubble in the late 90s and what happened in the last few years with cryptocurrencies.
Markets tend to reward long-term investors. Instead of passion, you need a cool, calm head and the discipline and patience to leave your investments to grow.
That’s All Folks
I hope this has been useful. By now, you’ll know there’s a pretty common theme to how I approach investing. Set things up right at the start and then ‘steady as she goes’.
It’s not rocket-science. Sure it needs some initial thinking at the start but, after that, patience (and sometimes a bit of courage) are the key components.
I’m here if you need me…