Want to Start Investing? Ignore These 6 Common Myths

Separating myth from reality can be a challenging task for would-be first-time investors. If you’re thinking of starting to build your investment portfolio, don’t let these common myths and misconceptions scare you off.

Myth #1: Getting started is hard.

Yes, the process can feel intimidating to a first-timer, but the fact is that it’s never been easier to take your first investing steps, and most people find that once they’ve taken the plunge and gotten started, the world of investing isn’t as daunting as it previously seemed. The Internet has made a wealth of great investing information readily available, and you can now open a basic brokerage account or an IRA (Individual Retirement Account) online with just a few simple clicks. If your company offers a 401(k) plan that you are automatically enrolled in, you’re already on your way to becoming an investor. Just ask the program manager for more information, read up on your investment choices, and decide what amounts you want to put aside.

Myth #2: You need to be an expert to invest.

It’s helpful to have a certain amount of basic information to help you decide what investment choices are best for you, but this doesn’t mean, as many beginning investors assume, that you need to understand everything about how the stock market works before you can purchase any investments at all. It’s not possible for one person, even an experienced professional, to know all there is to know about the market. Instead, the trick is to develop your knowledge of just one small part of the market and let that expertise guide your decisions. You can use Warren Buffet as your example here: unlike most other professional fund managers, Mr. Buffet sticks to what he knows and doesn’t pretend to be an expert on everything. His portfolio is mainly invested in just a handful of companies.

Myth #3: Investing takes a lot of money.

One of the biggest misconceptions that holds people back from investing is the idea that it’s only worth doing if you have lots of money to invest. On the contrary, smart investing is all about setting aside quite modest amounts of money on a regular basis, which can add up to a surprisingly sizeable nest egg upon retirement. In addition, plenty of funds need no more than $100 to $200, and there are companies on the market trading at less than $10 a share. You’ll need to take transaction costs and other fees into account, which may sometimes make it worthwhile to invest more rather than less at one time. However, the fact remains that it’s perfectly possible to start investing with little money.

Myth #4: Investing is basically gambling.

Unfortunately, far too many people equate investing with gambling. But the principles underlying the two are essentially different. While the point of gambling is for other people to lose money so that you can make money, investing is about utilizing money for growth, which in turn benefits everyone. No one has to lose in order for you to earn money from an investment. So keep this in mind before buying a lottery ticket instead of putting some cash in your 401(k).

Myth #5: Investing is too risky.

No investment is completely risk-free, but what first-time investors don’t always understand is that you are in full control of how much risk you want to take on and when. Certain types of investments can be riskier than others — sometimes much riskier — but there’s absolutely no reason for you to put your money in these investments if you don’t want to. If you prefer to minimize risk as much as possible, there are plenty of investments, like bonds or dividend stocks, that provide more modest returns but expose you to less risk than other options. If you don’t feel comfortable, don’t do it — it really is as simple as that. And if you’re still hesitant, consider this: not investing may actually be riskier than investing. This is because savings accounts may accrue interest at a lower rate than the rate of inflation. So if you keep your cash in savings rather than investments, you may actually lose money over time.

Myth #6: If I’m a homeowner, I’m already an investor.

To debunk this myth, it’s important to remember that true investing means having a well-balanced and diverse portfolio. Owning a home means that you own an asset, but owning just one asset, however valuable, still has its limits. Furthermore, recent events have shown that homes aren’t always steadily appreciating assets, and when the numbers are crunched, it turns out that the housing market has only just outpaced inflation over the past century. So while having a single real estate asset can help protect you against inflation, it won’t necessarily bring you the kinds of returns that other investments can.