Stock market advisors hear it all. Their clients come to them with rumors and innuendo, requiring them to often give free investing lessons. Ten myths top the list of these rumors that periodically go around the Internet. In this article, we will reveal those 10 of these myths and debunk them with the truth.
1. All Stocks Are Risky
Any good stock market advisor will explain the fallacy present in this myth. The world will always need certain items, such as food, clothing, housing, heat, air conditioning, potable water, etc. Established companies that offer these types of go-to items that people the world over need will always make low-risk investments. Since people continue to enjoy restaurant food, even if they get it delivered, grease recycling continues to offer a viable investment. Ask your stock advisor which companies offer the lowest risk, and most certain investments, and stick with those.
2. Gold Is a Better Investment
When articles and videos recommend buying gold, they don’t mean gold jewelry. Your market advisor explains it best, by warning you about investing in gold, something typically best done by those with millions or billions of dollars in savings. The extremely non-liquid gold makes a good investment if you have already developed a diverse portfolio and won’t need to liquefy assets.
Gold does hold value well. Purchasing and holding bullion does guarantee certainty, since gold rarely varies much in value. However, gold doesn’t offer a “safe” everyman investment.
Most of the organizations that advertise selling gold, silver, and collector coins online offer shady deals. They claim to offer guaranteed buybacks at the original purchase price at a minimum, but cannot deliver that guarantee. When your market advisor warns you against using these organizations, they offer valid advice.
3. You Need a Lot of Money to Start Investing
A plethora of Millennial investing apps proves that no one needs lots of money to begin investing. The first of these apps developed in the early 2000s offered those in Generation X the option to invest by purchasing partial shares of stock. This process lets people who earn lower salaries build portfolios. Today’s apps are built on that idea.
Whether you want to invest in cryptocurrency, hearing aids, or fintech, your stock market advisor can help you get started by recommending an app that lets you purchase partial shares or get started with lower-cost stocks. Apps like Acorns allow investors to open 401(k) accounts and other investing accounts, so they can build a portfolio using their spare change. The process, called round-ups, turns every purchase into a tiny savings deposit that the investor can direct into their retirement or investment accounts.
4. Investing Is Too Complicated
Finding a trustworthy stock market advisor immediately reduces the complexity of investing. Consider using a company like Charles Schwab to get started with investing. Choose an exchange-traded fund (ETF) that offers a variety of stocks within it. Many ETFs focus on specific goals, such as eco-stocks, cryptocurrency, or fintech, so you can easily invest quickly in a few stocks that all achieve the same goal or belong to the same industry.
For example, an ETF that centers around ecologically sound companies might include a solar panel company, a wind power company, or a handful of utility companies that offer net metering. Some ETFs link to an established index like Standard & Poor’s, so they offer a diverse number of stocks of all types. When getting started investing, a money market or ETF can make it easier since a professional market analyst chooses the stocks.
5. Investing Is the Same As Gambling
Investing in your favorite energy company bears no resemblance to gambling in Las Vegas, Atlantic City, or Monte Carlo. Gambling involves random odds, such as the random number generators used in powering a slot machine. Each stock represents a business that has been established for a few years, performed well enough to go public, and offers a product that people need.
A professional market advisor can help a new investor choose wise investments that offer low risk. All gambling offers high-risk options, but when buying stock, you can purchase a “sure thing,” because some stocks hold value well. Ask your stockbroker what companies offer the surest investments, and they will probably name Apple, Microsoft, AMD, Amazon, Walmart, and Target. These major corporations offer needed products and services and have modernized as times changed.
6. Invest in Popular Companies
Some popular companies go through ups and downs due to their polarizing leaders. As much as Americans love pizza, you’d probably think of it as a sure-thing investment, but ask your stock market advisor about the huge plummet that Papa John’s stock went through a few years ago. Some companies that prove popular today won’t make good investments over the long term because their founders or current leadership don’t value balanced leadership. As PepsiCo has experienced periodic boycotts since the 1980s, even the largest corporations can undergo damage when consumers refuse to purchase their products due to a conflict in their business practices.
Research any company, even a popular one, before investing in it. Its leadership might have a polarizing effect or make bad decisions, such as using child labor, offering false marketing, etc. Invest in companies with positive work cultures that respect their employees and use above-board business practices. This research can help you make wise investment decisions based on sound policies and honest companies, not what proves most popular at the moment.
7. You Can Get Rich Quickly
Investing differs from winning the lottery. Every once in a while, a person gets lucky and makes a huge amount of money quickly, but don’t count on that happening. Your stock market advisor will tell you that an investment business catering to those who want a get-rich-quick-scheme doesn’t offer anything honest. Avoid those types of so-called investment firms altogether and stick with established companies like E. F. Hutton and Charles Schwab.
An honest, forthright investment analyst or stockbroker will explain that building a stock and bonds portfolio takes time. Focus on buy-and-hold investments that gain value over the long term. Many investors pass their portfolios along to their beneficiaries, who also buy and hold the stocks and bonds.
Building a diverse portfolio of stocks from various sizes of companies in a number of industries, and then adding bearer bonds and a small amount of resilient cryptocurrency works best. As you develop your portfolio and build wealth, consider other investments, such as gold. Ask your stock analyst or broker to help you plan a long-term investment strategy that works.
8. Day Trading Is Simple
Many people look at day trading, the process of purchasing a “sure thing” stock as soon as the market opens, and then selling it just before the market closes, as a way to earn money quickly. In truth, most people either merely break even or lose money doing this. In fact, only four percent of day traders earn money doing so, according to New Trader U. Buy and hold earns money, but day trading does not, so if you spot an irrigation firm you think you want to own a part of, buy its stock and hold on to it for decades.
Ask your market advisor for advice on how long you should hold on to a stock. Most will counsel you to invest only as much money as you could afford to lose. If you cannot afford a loss, you aren’t yet ready to invest in the stock market, cryptocurrency, or precious metals. Also, avoid gambling.
9. The Movements of the Market Are Random
Let’s permanently negate this myth. The stock market responds according to the economy. Stockbrokers monitor the markets according to signals, but not the kind that the get-rich-quick-scams advertise. Unscrupulous “stock coaches” advertise apps that will monitor signals for you, then invest for you when the robot, or artificial intelligence, says you should.
Learning to pick stocks requires much more study than learning to pick the ponies. Rather than a matter of chance, it boils down to finding companies that address a need, operate honestly, respect their employees, and continually innovate. These companies must respond quickly to market changes and the worldwide economy.
Instead of paying a lot of money to buy a “stock picking” course, go to a website that offers free college courses online, like EdX.org or Coursera, and take a few essential economics courses. Ensure that you understand how a fiat currency failure in Venezuela affects oil prices in the U.S. and other similar situations before trying your hand at investing. Even educated individuals like those at an engineering firm may not have taken the right classes in college to prepare them for investing. Ask your stock market advisor for advice on which classes to take, so you can quickly get yourself up to speed on the knowledge you need.
10. Markets Are Always Efficient
Economics does not really operate at a Pareto optimal. Markets fluctuate, and you can’t time the market, although some people do try. Your wisest investment could undergo an environmental spill that costs billions in environmental cleanup. Not only do markets not always operate efficiently, but things happen. Ask your stock market advisor to share a few examples of this from their own trading history to understand that market lag and instability hurt everyone.
Buy and hold works best. Make your investments wisely, based on research and past performance, instead of hedging bets or guessing. Avoid over-monitoring your investments, too, because market fluctuations sometimes scare people into selling, when an imminent turnaround would have earned them more money.
Myths Debunked: How to Invest Wisely
Research on a company that results in learning that it produces a needed product or service in an efficient, above-board manner, and its leaders behave in a rational, logical, fair-minded manner, results in finding the best investments. Avoid the mistake of buying a “fallen angel,” a blue-chip stock that fell remarkably in price. Just because the price dipped, does not make it a good buy. Learn why the price dipped, so you understand whether the stock will likely increase in value again.
The old adage, “Buy low, sell high,” can’t be the only trading knowledge that you have. A cheap stock does not mean a wise investment. The ability to buy a lot of something, hoping it will break out and double or triple or increase more than that amount, does not qualify as a sound investment strategy. Purchase healthily growing companies at a reasonable stock price to build a viable stock portfolio.
Just because a stock goes up does not mean it will fall in price either. This remains true for cryptocurrency, too. For example, although Bitcoin eventually dipped from its high, it never again fell to its early values of less than $10 per share or token, if you prefer.
Also, although a little knowledge goes a long way because knowledge really is power, always consult those with more knowledge than you. Your stockbroker can help make fabulous picks because they know the market better than anyone. Every day, they make their living by researching companies, reading prospectuses, and monitoring economic changes. Take classes from colleges and universities that offer knowledge that you can build on for better financial decisions.
Getting Started Investing
Learn the essentials of economics and investing by taking free college classes before trying to invest on your own. Choose an established stock trader with which to establish a trading account. Confer with your stockbroker in person or online via Zoom, explaining your goals and where your finances sit at present.
Listen to your broker who should explain that trading on the stock market does not offer a quick way to get rich. Instead, it offers each person the option to build wealth slowly and surely by making low-risk investments in established, growing companies, and to occasionally buy into growing companies when they go public. Using a buy-and-hold methodology works best, so the small amount you invest can take time to grow larger.