What stops new investors from putting their money in the market? Sometimes it’s plain old anxiety: What if I make a bad move and lose all my money? Sometimes it’s a sense of caution: Maybe I’ll wait until things calm down.
Whatever the rationale is, these seeming instincts actually stem from a handful of investing myths that many investors aren’t even aware of. They’re like old sayings, but not the good kind. In fact, these time-honored misconceptions tend to fuel the reluctance of many would-be investors — and can result in them missing out on growth opportunities and trading stocks.
Let’s sort through five common investing roadblocks, and reveal the truth behind the myths that may be holding investors back.
Myth 1: You Have to Invest at the Right Time
Reality: When it comes to the markets, there is no “right time.”
When the market is hot and everyone is talking about how stock X or Y or Z is a winner, you’re probably tempted to dive in. But when the market heads south, you may feel wary and want to pull out.
The truth is that the market is impossible to predict. Trying to time the stock market is an iffy business. But if you pull back the camera lens and look at the long-term performance of the markets, the general trend is that stocks move upward. Even after a crisis like the Great Recession of 2008 – 09 (or the Great Depression from 1929 – 33), the markets eventually rebounded.
In fact, the average stock market return in the U.S. is about 10%, over time.
The bottom line: The best time to invest is when you’re prepared; you know you’re in it for the long haul; you have the funds; you understand your risk tolerance, and you’ve identified your financial goals.
When these fundamentals are in place for the long term, the market’s short-term ups and downs become far less relevant. The best time to invest is when you start.
Myth 2: I Need to Know Everything about the Markets Before I Start
Reality: Start with what you do know and keep learning from there.
Gathering information and doing research is an important part of investing. But too often people hesitate to get started because they think they need to know far more than just investing basics. That means not just stocks and bonds, but options, futures, commodities, and crypto too.
There are two reasons why this perspective — which can sound like common sense — can be so misleading.
First, markets are imperfect. They can sometimes move in ways that take stock market veterans by surprise. So a new investor hoping to acquire the ideal amount of information isn’t ever going to get there. You have to be willing to take a leap of faith based on the knowledge you do have, and keep a long-term view.
Second, most experienced investors don’t try to master each type of investment all at once. Instead, with or without the help of a financial professional, they determine their risk tolerance and from there determine the asset allocation and diversification that best fits their financial goals. This usually involves a combination of stocks, bonds, mutual funds, and ETFs.
When more esoteric investments come their way, such as REITS, or crypto, or employer stock options, wise investors, new or veteran, take one thing at a time. They do their best to understand each scenario and make their decisions based on how these investments best fit their portfolios and financial goals — and learn as they go.
Myth 3: Never Invest When the Market Is Down
Reality: A down market could be the best time to invest!
When the market dips owing to external factors — like global disruptions or economic shifts like a spike in interest rates, inflation, or unemployment — that can cause the stocks of many solid companies to trade at a discount to what their true value is.
That’s why investing when the market is down is often known as a buying opportunity. Why? Because when the dust settles, stocks with solid underlying fundamentals and high potential earnings growth will return to, and possibly exceed, their earlier highs.
So if you buy during a downturn, you are “buying low.” Sometimes new investors chase the hottest new investment trend and “buy high.” Not ideal. Better to follow an adage that’s not a myth: Buy low and sell high.
But buying low is a mindset that takes time to get used to because it’s counterintuitive. Buying on a dip raises the fear of further losses. But the good news is: If you’re getting started in a down market, and you’re focused on solid investments, you can buy low and potentially come out ahead.
Myth 4: I Don’t Need to Invest Outside My Retirement Account
Reality: You may find more opportunities outside of your retirement account.
Don’t get us wrong: Investing for retirement is incredibly important and should be a priority. Not only are you saving for your future, but you’ll benefit from the many tax advantages retirement accounts such as employer-sponsored 401(k)s and IRAs offer.
That said, depending on your financial situation and goals, retirement savings may not be the only investing you want to do. That’s because of the limitations retirement accounts impose. For instance, in your employer-sponsored 401k you’re limited to the investment options your employer’s plan offers. You may find you want more choices when targeting other financial goals.
With an IRA you may choose your investments, but to gain the tax advantages, you’re limited to a certain amount you can invest each year. In 2022, for instance, most individuals under 50 years old may contribute $6,000 to a traditional or Roth IRA. Those over 50 may contribute $7,000.
A stand-alone investment account, often called a taxable account, can offer many more investment choices and flexibility over your retirement portfolio.
Myth 5: Being a Successful Investor Takes a Lot of Time
Reality: Investing doesn’t have to eat up your life. When most successful investors are getting started in investing, they learn as they go.
The secret? Choosing stocks and bonds with the potential to grow over a long period of time to help fulfill long-term goals such as retirement or paying for a child’s college tuition.
When you take a long-term approach, you won’t need to track all the daily ups and downs. Leave that to the day traders. You’re in it for the long haul, so you can get to know how different stocks, mutual funds, or exchange-traded funds (ETFs) perform over time — and avoid reacting to every market swing.
Learning to invest is an ongoing process and it can be intimidating for newcomers — largely because a few common investing myths that have become roadblocks. To start, it’s important to avoid falling prey to long-held misconceptions like the idea that you have to find the exact right time to invest, or that investing requires a degree in Wall Street. Mainly, these are flawed notions that create uncertainty, and prevent would-be investors from taking advantage of the many possibilities for growth the market offers.
The bigger truth is that there’s no teacher like experience, and getting started has never been easier than opening a brokerage account with SoFi Invest®. SoFi offers tools that can get you started with no-commission trades, fractional stock shares, and access to stocks, exchange-traded funds (ETFs), and crypto. Even better, SoFi members have access to complimentary financial advice from professionals. Don’t let myths stand in your way — get started today!
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