5 common myths about investing

Many people are investors without even realizing it. Anyone with cash on hand has one of the most liquid assets available. If you buy a house, you’re investing in real estate. Even livestock are considered an investment.

If you’re interested in investing in the stock market, you may have hesitated based on stories told by friends and in the media. These myths often serve as barriers that may scare the average American away from investing – but anyone can invest if they have the financial resources and understand the risks and benefits. We’ll debunk some common myths that keep people from taking their first step to start investing.

Myth: You need to know a lot about investing to start

The biggest myth that keeps people from investing is that it’s difficult or inaccessible to the average person. They may picture an investor as someone who spends hours at a computer analyzing complex graphs and calculating obscure numbers, or they may believe they’re simply not smart enough to be good at investing.

The truth is, now it’s possible for anyone to invest money actively or passively. Self-directed investing platforms can be a helpful option for self-starters. They often provide education and tools to help investors build a diversified portfolio. Meanwhile, investors who want guidance but prefer to invest digitally can use automated investing platforms, also known as robo-advisors. And, of course, working with a financial advisor is an option for anyone who prefers a human touch.

Reading a step-by-step article or watching a short YouTube guide from a reputable source is a good way for a potential investor to get started.

Myth: You need a lot of money to start investing

The other common myth non-investors share is that they’re not wealthy enough to invest.

While bigger investment sums often generate higher yields, it’s possible to do the same with smaller amounts given the right strategy and enough time.

For example, you can purchase part of an exchange-traded fund (ETF) or stock at many financial institutions. Also called fractional shares, you can buy as little as 1/100 of a stock or ETF. It’s a way to get your feet wet and familiarize yourself with the basics of investing.

Myth: You can retire on $1 million

More seasoned investors may be familiar with the $1 million standard for retirement accounts. It used to be that $1 million was the benchmark for retirement savings – once you reached it, you could rest assured you’d be able to retire comfortably.

Fortunately (and unfortunately) people tend to live longer nowadays, and things cost more. A 65-year-old man is likely to live another 16.95 years on average, while a typical 65-year-old woman can expect to live past 84, meaning you’re likely to have 20 or more years that you will need to plan for financially. And not only may you be spending more on health care and potentially long-term care, but you’ll likely be spending more on everything else because of inflation.

Depending on your lifestyle and retirement goals, investors should be aware that they may need to aim higher when contributing to their retirement accounts. A simple way to calculate this is to take the retirement income you expect to have and divide it by 4%. Someone who wants to withdraw around $60,000 a year in retirement, for example, may need a nest egg of at least $1.5 million. But planning to live on less or saving more than you think you’ll need could be the safest bet, because you never know what the economy will do or how long you’ll end up living.

Myth: Successful investors take big risks

Some high-profile meme stock frenzies have perpetuated the myth that you need to take big risks to see big rewards as an investor. While the idea that big risks translate to big rewards isn’t totally untrue, it’s worth noting that day trading is very risky. It’s likely you won’t make big money as a day trader since timing the market is so difficult.

Depending on your time horizon and risk tolerance, an alternative approach is to consider investing in a diversified portfolio of long-term assets. Data shows that investors with a 60/40 portfolio – 60% in stocks and 40% in bonds – average 11.1% returns over 10 years. This strategy isn’t as immediately gratifying as a short-term profit, but it’s important to consider investing for the long run to meet your long-term goals.

Myth: You shouldn’t invest during a recession

It makes sense that beginner investors would be hesitant to invest their money during hard economic times. And it’s true that if you’ve fallen on hard times, such as a sudden job loss or overwhelming debt, you might want to focus on becoming financially stable before investing in the market.

But if you have stable employment, adequate emergency savings and no pressing high-interest debt, the biggest determinant for how you invest should be your personal financial situation and not the state of the market. If you’re concerned about a bear market, look into the history of bear markets in the U.S.

For more information on navigating common investing myths, consider consulting a financial advisor.

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