Updated: Aug 9, 2022
Financial experts opine that everyone should invest for long-term financial benefits. But managing finances and investing is a daunting task that scares most people. It is especially true when it comes to personal finance. You will undoubtedly hear innumerable adages and axioms from the many people who will try to help you with their 'finance knowledge and wisdom'.
However, in the majority of the cases, what you hear about investing is not valid. There are many myths related to investment management. Whether in Houston, TX, or Cypress,TX, you must have heard about some pervasive investment myths.
Mentioned below are eight such common myths which are related to investment management:
1) The stock market's volatility is very high – a comparison of stock markets is often made with casinos. The reality is stock markets are highly volatile and might pose risks only in the short run. So, you should aim for the long-term when you are planning to invest in the stock market.
Investing in the stock market should also be done with proper planning, precisely, long-term planning. Getting high returns overnight shouldn't be expected from this market.
2) Higher risks must be taken for receiving higher rewards – This is a widespread myth related to investment management. As per the myth, until and unless you take higher risks, you won't get higher rewards. Many investors take such risks, expecting that they will get exceptional results. But the fact remains that there is no guaranteed return in any kind of investment. Moreover, there is always a risk factor associated with investments. Experienced investors keep the risk spectrum in mind when setting investment objectives. It is important to learn the skills of managing the risks properly.
3) Investments are only for the super-rich – You must have heard many people say that investments and financial management are for the rich. The truth is that you do not need to be a millionaire to make investments. The main thing is that you must start investing early and in a consistent way.
There are various investment instruments. The sum you want to invest varies depending upon the investment instrument you choose. You can always start with a small amount and then increase your investments. Initially, you must get used to the idea of investing. Gradually, it will become a habit, and you will make investments with interest.
4) Blue-chip company shares are the best to own – We all know that blue-chip stocks are shares of companies with excellent brand value, excellent track record, and defendable margins. Owning stocks of such companies is okay, but this should not be the only route of wealth creation. Usually, the earnings are predictable through blue-chip investments. These stocks are generally moderately priced too. These stocks seldom trade below fair value as many investors flock to purchase them as soon as the prices drop. Though the track record of blue-chip stocks is impressive, nothing is permanent. You never know; there might be a downslide even in blue-chip companies.
5) FD (fixed deposit) is the best and safest instrument for investments – The most significant advantage of FDs is that the interest rates do not change during the period in which the investment is made. Fixed returns are guaranteed, and it is a very safe way of keeping your money. But should you invest all your money in fixed deposits? One problem with FD is that it might not be tax-free. Without proper tax papers in place, there might be deductions in the final return amount of the FD. Also, the return is usually not very high. Ask your financial advisor if investing in FD is a good idea for you.
6) Investing seems to be a highly complicated activity – Have you been procrastinating investments for a long time now? You are not alone in doing this. Most people think that making investments is a highly complicated process. There is also a notion that investments come with loads of research, studies, calculations,and evaluations. Therefore, it is a highly time-consuming process as well. Investments should indeed be made with some planning and analysis. But it is not as extensive as it seems. Professional assistance can also be sought in this matter.
7) When retiring, you must switch to bonds – Previously, people said that your financial portfolio should mainly include bonds by retirement. However, with time things have changed a lot Interest rates on bonds are low now in all places. To make an income from bonds, you need to have an extensive portfolio, which is tricky. The benefits of compound interest also slip out of hand with bonds. Moreover, the life expectancy of people is increasing. A diversified portfolio usually includes bonds, stocks, mutual funds, etc.
8) Timing the market is important – This is very weird and absurd. There is no way to time the market. There are various dynamic and external factors, which run and operate the market. Predicting market dynamics with complete accuracy is practically impossible. It is the reason diversifying your portfolio is often recommended.
As a newbie investor, you might already be confused and full of doubts. These myths will only act as an additional dampener. Instead of believing these myths, do your research before deciding.