When you hear the word investor, what comes to mind?
Perhaps it's the cliché characters portrayed in the movies - the high-powered executive who dresses nicely and sits in a corner office, or the math whiz huddled behind a wall of computer monitors, analyzing trends and crunching numbers. In other words, probably people who don't look or act like you do.
Why are fewer adults saying they're active in the market? Some may be held back by the idea that they don't fit the "mold" of an investor, or by other common misconceptions. But put to the test, these notions just don't hold up.
Here are six common myths about investing, and how to move past them.
1. Myth: Getting started is difficult
Investing is a great way to put your money to work. If you invest early and often, you not only build better savings habits, but your potential returns have much more time to compound and grow. But how can you get started? Many people think that they need access to a top advisor to oversee their investments. But the rise of mobile trading apps and robo-advisory services make it easier than ever for people to manage a portfolio.
"Many of today's apps offer clean and easy to use interfaces, various useful functionalities and most importantly, they're free," says Tyrone Ross, who operates a US-based financial consultancy called 401. "My clients use them for everything from monitoring their investments to tracking and budgeting."
2. Myth: Investing is too expensive
Think investing is expensive? If you said yes, then you're not alone. Many people believe that you need a lot of money to just open a trading account, and the best-performing investments cater to the top 1%. That's not true, though. Brokerages have ratcheted down fees and minimum account balances in recent years, allowing anyone to invest with as little as a few hundred dollars.
Not all funds are expensive, either. While some mutual funds - a basket of securities run by an experienced portfolio manager - charge 1% to 2% in fees, you don't have to look far to find inexpensive and efficient options.
3. Myth: I need a complex strategy
Investing may seem like an insurmountable challenge where only the experts can come out victorious, but that couldn't be further from the truth. What many people forget is passive investments - those that track an index or an industry sector - have beaten out some actively managed funds over the past decade. That means a complex strategy with all the bells and whistles isn't necessarily going to outperform a basic approach.
Keep in mind, though, that investing is much more than picking stocks. You'll want to think about how to diversify, manage risks and distribute your assets.
4. Myth: Only practice makes perfect
You may know someone who spends their weekend poring over financial statements and running spreadsheet models. It looks challenging but, even worse, time-consuming. They must be doing well, though, right? All the research and hard work must equal more success. But the truth is you don't need to spend much time to start investing.
What you need is a financial plan. Working with a financial advisor can help you establish appropriate savings goals, develop a retirement strategy and create a long-term investment plan. They have intimate knowledge of your finances and can recommend assets that help you reach your long-term goals.
"I like to start with the three Es; exposure, education and empowerment," explains Ross, "A lot of times people just don't know what's available, how to get started, and where to turn at major life milestones."
5. Myth: The market is a rollercoaster
When major stock market indexes hit a rough patch, it's natural to think that the next big recession is around the corner. You recall past downturns when markets contracted, unemployment rose and the economy appeared shaky.
Yet, most people don't realize that regular corrections are healthy, and history has shown the market has moved higher more often than not. (Though past performance is not an indicator or any assurance of future growth.)
If you maintain a long-term outlook, you may be more likely to enjoy the growth that the market can provide over time with much less stress. One way to do that is with a systematic approach like dollar cost averaging. It is a simple approach where you invest a fixed amount each week, month, or quarter.
6. Myth: Investing is a moral minefield
Striking a balance between money and morals may feel like you're walking through a minefield. But you don't have to sacrifice one for the other. Many publicly traded companies prioritize creating long-term value for shareholders while making a difference in the community.
Look for companies that incorporate environmental, social responsibility, and governance policies from the C-suite down to the first-year analysts. Whether firms try to reduce their carbon footprint or remove unwanted behavior, companies with strong ESG (environmental, social and governance) scores have outperformed over the past few years. You can also simply search for a list of Certified B Corporations - where B stands for benefits - which are for-profit companies that balance purpose and profit.
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* An ETF, or exchange traded fund, combines aspects of mutual funds and conventional stocks. Like a mutual fund, an ETF is a pooled investment fund that offers an investor an interest in a professionally managed, diversified portfolio of investments. But unlike mutual funds, ETF shares trade like stocks on stock exchanges and can be bought or sold throughout the trading day at fluctuating prices. ETFs can vary, including in their regulatory structure, management style, investment objectives, and indices tracked.
Asset allocation, diversification and dollar cost averaging do not guarantee a profit or protect against loss.
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This article is for informational purposes only; please consult your advisor to determine whether this strategy is right for you.
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