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These 5 Myths About Investing Money Has Been Costing You

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These 5 Myths About Investing Money Has Been Costing You

For decades, investing has long been known as a confusing activity that is primarily reserved for the rich and complicated for the average individual. But these ideas began to fade rapidly with an exponential increase in investing applications and influencers that make investing more accessible and relevant.

Despite these changes in the financial environment, there are still some costly myths.

Myth # 1: Investing is only for the rich

The phrase “money is needed to make money” is one of the reasons why this myth has become so widespread today. While it’s technically true that you need the least amount of capital to invest, it doesn’t need thousands of dollars like it used to.

“People hear ‘invest’ and then think about stock picking and day trading or investing in millions,” said Elizabeth Pennington, CFP® professional at Fearless Finance, a financial planning application specializing in Atwood Financial Planning. “But everyone who even contributed $20 to their pension account has already invested.”

Investment firms were once notorious for requiring clients to have anywhere between $5,000 and $250,000 to visit a financial advisor. In addition, if you want to buy a stock, it means buying the whole stock, which depending on the company, can be hundreds, sometimes thousands of dollars per share.

This is no longer the case as fees and minimums for investment services have fallen dramatically over the years. Many brokers now offer fractional stocks that allow investors to spend as little as $ 5 investing in stocks of their choice, allowing you to share the same percentage that someone with many investors earns.

Myth # 2: Keeping hard-earned money is safer than the stock market

In times of market fluctuations, it may seem safer to leave your money in a savings account. This is a common reaction to prevent the investment balance from disappearing rapidly as a result of a market event. While the face value of your savings does not show a sudden drop in value (unless you make a selection), you may lose purchasing power due to inflation.

For example, $ 100 in 2001 would cost about $ 63 in 2021. If the same $ 100 were invested in the S&P 500 index, in 2021 it would be $ 534. In economics, this is known as opportunity cost because not investing money in this situation would cost $ 295.

“If your account is full of money in a bank account with a low-interest rate, you run the risk that inflation is more than the interest rate. By investing in it, this money works better for you and has the potential to do so “grow over time, ”said Kelly Lannan, senior vice president of emerging customers at Fidelity Investments.

Myth # 3: All your debts must be paid off before you can invest

The debate between debt repayment and investing is one of the hottest topics of personal finance besides homeownership. “It’s a real lie,” Pennington said. “If they are told to wait to invest until the debt is gone, their future financial security could be damaged,” he added.

Focusing on debt repayment can provide a debt-free lifestyle with more free cash flow while investing can increase your total net worth and help ensure a comfortable retirement.

In this matter, it is very important to consider the type of debt you are likely to be trying to repay and the amount of that debt. But it is also important to consider the cost of the opportunity.

For example, if repaying a loan takes 10 years, then it is also 10 years of compound growth that you do not get, which makes it even more difficult to achieve your retirement goals.

Myth # 4: The stock market will only go up

Excessive confidence due to past stock market returns can be misleading. One of the most common phrases in the investment world is that past results do not predict future returns.

By 2020, the fund will receive more than 150%. But in 2021 it is back and losing almost 32%. While it is true that the stock market is growing more often than it is losing, this does not mean that the market is constantly growing, especially in the short term. From 2000 to 2019, there was a correction of 11 out of 20 years – 55% of the time, according to the Schwab Center for Financial Research.

Note: A stock market correction is known as a stock market decline of 10% or more, while a decline of 20% or more is known as a bear market.

Myth # 5: Investing is like gambling

In a sense, investing is the act of using your money to make a financial profit. In addition, it may seem like a gamble, especially since both carry a degree of risk and profit is not guaranteed. However, when we look deeper, there are many important differences between them.

The investment is designed to be mutually beneficial to both the investor and the company. This is because the company uses public markets to grow its business and growth helps increase investor wealth.

If the company was successful, the investor was also successful.

Gambling is the opposite, where each side stands on opposite sides; the casino will only win if you lose and vice versa.

Finally,

When it comes to your finances, a basic rule can be a simple and effective tool to guide you in the right direction, but it’s important to realize that it doesn’t replace situations. For more tailored answers to your financial questions, consider finding a professional.

I want people to know they don’t have to be rich to have access to professional financial advice.

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Written by Anthony Clark

Anthony Clark, is an entrepreneur, writer and social-media manager. Driven by his passion for finance, business, & technology, he takes pride in providing the best growth hacks possible. His skills include website development, ad campaigns and client acquisition.

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