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Between business news sites, personal finance blogs, podcasts, fintech application and social mediaWe are flooded with information and opinions that shape how we feel about our money – and importantly, how we use it.
One piece of advice we often get is put our money in the stock market, but the fact that making such a move can be intimidating. We know that investing can help us build wealth in the long run, but still risk implicated. Not to mention, it’s hard to decipher what’s true and what’s not about the market from everything we hear and read.
To help, Option spoke to two investment experts about common market misconceptions they hear, so we can dispel myths and make sure your money is working for you. .
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Myth 1: Investing in the stock market is like gambling
On the surface, it’s easy to see how people would associate investing in the market with gambling. Latest stock memes Trends have shown how quickly investors can accumulate (and lose) insane wealth overnight. Erin Lowry, The author of “Broke Millennial Talks Money” and “Broke Millennial Starts Investing,” even admitted that invest just for the thrill of it can be more like gambling.
There are some similarities between the two, admittedly Jeff Tsai, co-founder of JAVLIN Invest, a new app that helps investors gauge the volatility of the stocks they hold in their portfolios.
“Both involve risking capital without knowing for sure if you’ll ever get a return,” explains Tsai. “But perhaps the biggest difference between investing and gambling is that in the long run, time is in the investor’s favor while with gambling, time is in the casino’s favor.”
Patrick McGinnis, a CFA, CFP and partner at a wealth management firm The Monetas Group, agree that investing is a long-term game where investors are more likely to benefit from sticking with it over time.
“In gambling, someone wins and someone else loses,” says McGinnis. “Investment is about making a profit, and that profit is distributed to shareholders, making it a long-term way to gain wealth versus short-term speculation.”
And with investing, it’s not a bad idea to have someone to guide you along the way. ONE Financial Advisor can help you find long-term investments for your portfolio so you can avoid undue risk when jumping into anything. hot meme store during the day.
Myth 2: You can time the market
Despite what many veteran investors say TikTok Stock Trader can try to tell you, no one really knows what the market is going to do.
“Timing the market is extremely difficult, because it really has to make two decisions: when to pull back and when to buy back,” said McGinnis.
Look, he said, in the early days of Covid, when investors looked to pull out of the market amid financial turmoil, claiming they would come back when things got better. “[But] Selling low and buying high is not the way to make money in the market. “
Instead of trying to correct the market, the best path to successful long-term investing is in the right direction. Avoid getting caught up in the daily news cycle and let your initial investment strategy do the work.
Myth 3: The more stocks you own, the more diversified your portfolio is
“This is true to a certain extent, but the key is how the stocks are not correlated with each other,” says Tsai. In other words, how do stocks react differently to certain market conditions?
Correlated stocks tend to rise and fall together, while uncorrelated stocks tend to move in opposite directions. For instance, the portfolios of all high-growth tech stocks won’t be very diversified as they will likely move in tandem, Tsai explained. This can help your profit potential in a tech-friendly economic climate, but it also increases your risk because all your eggs are in one basket.
The key to having a Diversified investment portfolio – which, hey, every financial planner would recommend – is to split your money across multiple asset classes (stocks, bonds, real estate, etc.) almost any environment.
Myth 4: Profit percentage and loss percentage are the same
Understanding percentage gain and loss over time is important for investors because it helps them determine their rate of return, net profit or loss over a given period of time. The challenge is to think they are equivalent when you do the math.
Tsai gives an example: Suppose you lost 10% yesterday, but today you gained 10%. You might think that you are now back where you were two days ago, but this is not correct. If you started with $100 two days ago, lost 20% (or $20) yesterday, and then increased 20% today, you only have $96: a 20% loss on $100 means is that you’re left with $80, but a 20% increase on $80 is $16, bringing you to $96.
In fact, you’ll need a 25% increase to get back to $100: 25% of $80 is $20. What does Tsai want investors to be wary of? “Our minds can easily fool us,” he said.
Myth 5: Investing is for the rich
While investing money in the stock market was once reserved for those who had enough money to invest and means to hire an expert to guide them, no more.
Today, thanks to the appearance of No commission online brokerage and robo advisor, anyone can trade for just a small amount of money (or invest knowledge, really). An advisor robot is basically software that uses algorithms and data to invest on your behalf, according to your investment goals, time and take risks.
Top Rated Robot Advisor Improve There is no minimum that investors need to meet and the annual account fee is as low as 0.25% of your fund balance. So if you have $5,000 invested with Betterment, you will only pay $12.50 per year.
Female investors, in particular, may want to consider robot advisors Ellevest. Its foundation algorithm considers important fact of women’s life, such as wage disparities, career disruptions and longer life expectancies, so women can get a real sense of their financial position. Ellevest offers three different membership tiers ranging from $12 to $97 per year.
Key point
While certainly not everything we read or hear about personal finance is true, there is one consistent message we can all agree on: Investing money can help us. We build real wealth.
Now, the next time you come across one of the five myths above about the stock market, you’ll know how valid those claims really are and can adjust your plan accordingly. .
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Editing notes: The opinions, analysis, evaluation, or recommendations expressed in this article are the sole opinions of Select’s editors and have not been reviewed, approved or endorsed by any third party.
