Busted! 9 Things You Should Stop Assuming About Investments
Afraid you are no Gordan Gecko or Warren Buffet?
Investing could seem daunting at first. With jargon and a plethora of numbers that appear non-decipherable, it is only natural to think investments are not for everyone.
But, the truth is they actually are.
Here are 9 investing myths debunked
- Investing is meant for the rich
This one is often the most common myth accepted by those outside the investing universe. You needn’t already be a multi-millionaire to invest. Instead, it is more about starting early and being consistent.
There are multiple avenues to invest; these avenues do not have high minimum amounts. Such instruments are accessible and viable for all kinds of investors. This means you can start small. Begin getting comfortable with the idea of investing and grow gradually. For example, you can start a mutual fund SIP with as low as Rs. 500 each month.
- You must know how to time the market
There is, after all, no means to time the market. Markets are a consequence of multiple external and dynamic factors. While some events in markets are termed cyclical, it is impossible to predict market dynamics with 100% accuracy.
So, what can you do instead? You diversify your portfolio and stick around long enough to endure short-term market fluctuations.
- Past performance guarantee future returns
Historical trends are an essential consideration before investing. However, it must be borne in mind that the patterns could vary with changing contexts. Given the volatility in the markets today, it is wise not to make investment decisions based on past trends alone. For example, if you look at the Sensex composition 20 years ago and look at it today, there is a vast difference. Several relevant companies then do not even feature in the list today. This is because they became obsolete over time. Make a note of past performances before investing. Remember, it does not guarantee future returns.
- Stock Market is too volatile
Stock markets are often wrongly compared with casinos. The volatility involved in stock markets is scary in the short-run. However, investors beginning their journey should look at it from a long-term perspective. The inherent difference between investing and gambling is a plan.
The objective of wealth creation is a long-term plan, which is not going to happen overnight. Investing is as much about patience once you have picked out the right funds, as it is about generating good returns.
- Investing is a time-consuming activity
One of the top reasons for procrastinating investments is that it is a complicated process. People often think investing is about pouring over balance sheets and other research for hours to evaluate and make calculated decisions. The truth is investing does not necessarily have to be a time-consuming activity.
On the contrary, researching for top mutual funds that align with your investment goals does not need much effort. Several broad-based funds could be identified that are managed by professional fund managers. They will research on your behalf to generate handsome returns.
- Investing in stocks is the only option
Investing is often misinterpreted as investing only in stocks. That is not the case. There are several other like bonds, commodities, currencies, or real estate for you to choose. Your portfolio is determined by the accumulation of assets that help you reach your investment objective.
Every class of asset has its features that assist one goal or another. As a beginner, you must diversify your portfolio. Diversification helps in understanding what works and does not work for you in the long run.
- Safe investments are the best bet
Several first-time investors think that safer options like fixed-income instruments are their best bet. However, ‘real’ returns on such investments could be lowered due to the impact of inflation. The aim of any investment should be wealth creation and, therefore, it should have the ability to beat inflation by a wide margin to create ‘real’ returns in the future. Safe investments may be reliable, but depending on the inflation rate could decline in value over time.
- Higher rewards require higher risks
Investors are often willing to take on higher risks hoping the awards to be exceptional. The truth is, no investment comes with guaranteed returns, and there is always a risk of losing money. Several experienced investors often sit on mid-to-low end investments on the risk spectrum to meet their investment objective.
The key is to manage the risks you take in the best possible manner. As investors, you should consider the diverse range of investment avenues available – asset combinations, a plethora of funds, investing strategies, and so on.
- Accumulating stocks on every dip
There is a significant difference in buying good shares on a dip versus a bad stock on a decline. A quality stock could correct in the future. A cyclical stock could also correct in the future. However, a weak stock only crumbles over time.
Investing is about understanding the critical difference between the three. A cyclical stock can be picked up if there is hope on its bounce back soon. Quality stock is always worth being included in your portfolio during a sudden dip. However, volatile stocks that do not have a bright future should be avoided at all costs.
Investing myths could be a dampener. They could hold you back from investing and achieving your long-term financial objectives. Do not let such myths drag you down. Instead, begin your investing journey today as an informed investor!
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