Investing Myths

Don’t believe everything you hear.

1. It’s Overly Risky

Too many people are not investing because they think it’s too risky. They’ll hand their money over to this thing they don’t understand and poof, X bad thing (they’re not really sure what a bad thing is, they’re just sure there are lots of them) happens and their money is wiped out.

So instead, they leave it where it’s nice and safe, in a checking or savings account or stuffed under the proverbial mattress. What they don’t realize is that those things are even riskier than investing.

When money is in a low yield account where it’s making less than 1% interest or under the mattress where it’s making no interest, inflation is eroding the value of that money slowly but surely. If your house burns down, the money under the mattress is ashes.

Yes there are risks to investing but an investor can choose how much risk to take and there are ways to minimize risk There are places to invest money like dividend stocks or bonds that allow money to grow with limited risk.

You can further reduce risk by having a properly diversified portfolio meaning your investments are spread out between different market sectors and different asset classes so if one area is doing poorly, you have other areas doing well to make up for it.

And while the stock market can quickly plunge, historically it has always rebounded. In the nearly 100 years since the Great Depression, there have been fewer than two dozen losing years for the stock market. That means the best way to keep your investments safe is to be in it for the long haul, set it and forget it which is what LMM has long advocated and what investing in index funds accomplishes.

You don’t put money in and pull it out based on screaming pundits or scary headlines, you don’t try to time the market. You put your money in and leave it alone. Stocks become less risky the longer you hold them.

2. Investing is Only for Rich People

In the old days you needed a stock broker if you wanted to invest in the stock market and often they wouldn’t even take your call unless you had thousands of dollars you were ready to invest.

But now that companies like Betterment are on the scene, investing has become democratized. Many investment platforms have no minimum to get started so if you have five bucks (or less) you can invest. You also need almost no knowledge of how the market works or even what it is to get started.

You don’t have to be a rich person who pays another rich person to invest for you. The fees for companies like Betterment are very low and it’s passive investing. You aren’t paying a fund manager and there is no reason to as they almost never beat the market.

If your employer offers a 401k you can get started there. It’s easy to start investing this way because almost everything is decided and done for you and the money is taken out of your check before you even see it; seamless investing.

3. You Need a Lot of Money to Make a Lot of Money

I think this is the one that holds a lot of people back even more so than fear of risk or lack of knowledge about investing. People think,

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