6 Investing Myths You HAVE to Forget

6 Investing Myths You HAVE to Forget

Inside Investing  | Feb 04, 2019 05:57AM ET

6 Investing Myths You HAVE to Forget

There’s no investor that hasn’t encountered at least one investing myth since they started their own investing journey. These myths can be minor with hardly any impact on how you function, but some can seriously get in the way of good investments, potentially costing you a hefty sum in the long run. We joined up with Clement Thibault to dispel some of the most common myths around, and hopefully, save you from making a bad decision based on bad info.

Chalkboard, Facts in red, Myths crossed out

  1. Popular Companies Make for Good Stocks
    Popularity doesn’t guarantee success or even growth. Many popular companies are bad stocks, suffering from valuation that is too high, enjoying a brief price hike due to hype, etc. For example, General Electric was one of the most popular stocks in the market, but in the last 2 years, it has lost over 66% of its share value.

  2. Investment Fees are Negligible
    They’re not - they really do add up. In the beginning, you may not feel like it’s much, but over time, fees end up costing you thousands and thousands of dollars. The difference between 1% in annual fees versus 3%, when calculated for an initial sum of $100,000 at a growth rate of 7% over 30 years is $305,257 versus $563,079. That’s $257,822 you lost, or almost half of your profit.

  3. There is Such a Thing as “Riskless Investment” or “Guaranteed Returns”
    If someone offers you a “Riskless Investment” - run for the hills. Any and all investments carry some type of risk, and only a scammer will make you such a dubious promise. If you want to minimize your risks, invest time in risk-assessment and always have an exit strategy. The same goes for “Guaranteed Returns” - No one knows the future and thus cannot guarantee returns. A good rule of thumb is - “If it sounds too good to be true - it usually is”.

  4. You’re Too Young/Old to Start Investing
    If you think that “I’m 40, I’m too old to start investing”, or “I’m only 20, I have time” - you’re wrong. You can start investing at any age, as long as you have capital. While it’s true that the earlier you get in, the more chances you have to make a nice profit, but you also have more risks. Don’t let your age be a barrier, just make sure you do your due diligence.

  5. Analysis and Research are the Most Important Things
    OK, they’re really important, but you know what’s more important than them? Risk Management! Make sure no single position you take can ruin your portfolio, have an exit strategy for each position, and stay up-to-date on what’s happening in the market.

  6. You Need A Lot of Money to Invest
    You don’t. Compounding interest over 40 years can make anyone rich! If you invested $225 in 10 McDonalds share back in 1965, you’d have $1.36 million worth of shares today. If you bought $1,700 worth of Starbucks stock in 1992, you’d have around $429,000 in shares today.

What other investing myths do you think people should know to avoid? Let us know in the comments.

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