The biggest mistake that can be made while investing is deciding that investing is not for you. There is a lot of confusion and unnecessary fuss that the word “Investing” is surrounded with. All of us have heard many such advice from people around us. “Don’t invest in stocks”, “Mutual funds are risky”, “Put the money in an FD”, I’m sure all these sound familiar. While they aren’t bad investment advice but they don’t hold much relevance in today’s time and age.
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With the new year coming into the picture, some myths must be left in the year 2021 and an effort must be made to usher your finances into wellness and growth via proper financial planning and goal setting.
Here is a list of investing Top 8 investing myths to leave behind this new year:
- Investing requires a lot of money:
Long-term investments are an excellent way for wealth creation and one of the greatest myths and fears among the middle class is that investing would require a huge sum of money and only the rich can invest. SIPs are one of the greatest examples of how small and consistent investments can lead to amazing returns in the long run. Many Mutual Funds offer SIP plans starting from as low as Rs.500 that can help you in taking the first step towards your investment journey.
In the end, the amount of money or the choice of investment has to base on the end goal that you wish to achieve, but what is important is to bust this myth and take the first step towards active wealth creation.
Hence “Investing requires a lot of money” is a myth to leave behind this new year.
- Savings will secure your future:
Savings is a necessary first step to create a strong base towards financial security but it isn’t the end goal of your investment journey. Many a time people will park huge funds in conventionally safe investment schemes, that don’t generate returns that beat inflation. If the annual inflation rate is around 5-6% and you have funds parked in a savings bank that typically offers around 3-4%, then the wealth creation process is stopped even before getting started. Even Fixed Deposit returns post taxation won’t give the investor any respite.
After busting this myth, the next step for the investors is to actively look for investment instruments in different asset classes like equity, debt, gold, and real estate to beat inflation by a good margin and create wealth in the long term.
Hence relying on just savings for your financial goals is a myth to leave behind this new year.
- FDs are the best forms of investments for middle-class families:
Fixed deposits are traditional low-risk instruments offered by banks. There is little or no risk of losing the deposit amount and the returns that FDs offer are a little higher than what banks offer on regular savings deposits. Fixed deposits aren’t bad investment choices, they can be effectively be used for less expensive financial goals but for something like education abroad investment avenues such as mutual funds or EFTs should be used as a means of active investment.
Fixed deposits are not the only form of investments that will help you in wealth creation, fixating on FD’s is yet again a myth to leave behind this new year.
- One needs to time the market for a perfect entry:
All of those investing in the stock markets would ideally like to buy at the lowest and sell at the highest price point. But, waiting around for the perfect entry will rob you of the opportunity of actually investing and gaining generous returns. Nobody might know the correct entry point when investing in the stock market, but continuously taking on trades is making you take on the risk that doesn’t compensate for the returns that come.
More so for a long-term investor, it proves to be of a greater benefit to invest at regular intervals. The goal is to stay in the market and participate in the actual returns rather than sitting out and waiting to take a big scoop of profit.
Timing the market hence is yet another myth that can be left behind this year for good.
- Chase perfection in your trades:
The goal of investing is not to make the perfect trades by not committing mistakes. In fact, the only way to not commit mistakes while investing is to not invest, which is the biggest mistake there is to commit. Our goal as an investor is to not achieve perfection but achieve a large number of good and prudent investment decisions that help us align our finances to our end goal.
- Overdiversifying can help cut back losses:
While diversifying the funds to make it resistant to sudden losses still holds as a strong principle in investment, sometimes over diversifying that do more harm than good for your portfolio. Over diversification can dilute your returns thus nullifying the very benefit of it. For example, buying 7-10 large-cap Equity Funds won’t be classified as diversification. A desirably diversified portfolio can have a mix of different asset classes such as equity, gold, debt, etc., and further diversification under each specific asset class if you have many assets under one asset class alone.
Ideally, 3-4 funds might help you to create an optimally diversified portfolio. Leave over-diversification as a good myth as you usher into your new year.
- One is too young to start thinking about investing:
When you’re early in your career, two scenarios can be at play in your head; Firstly, that it is too early to start investing, and secondly, that you don’t have funds to necessarily invest in “profitable” instruments. The second scenario is a myth already busted in Point Number 1 mentioned above. And as for the first scenario you are never early to begin investing as investing is just a kind of planning and goal setting for the future. The earlier you invest the better returns you will reap.
- Investing is risky:
Investing is as risky and complicated as you make it. On the other hand, it can also be a simplified exercise to undertake once you decide to leave this myth behind. The ideas behind investing must be clear in your head, and once those are established the basics remain the same.
Don’t try to take any action at every price correction, don’t try to time a perfect entry and exit, have thorough initial research and get invested to stay invested and not make it into a gamble, where you might lose your wealth while you can have amazing results in the long run.
Investing is good for your financial health, and baseless myths that surround investing can stop you from making the right decisions for your money. Next time you read such myths on WhatsApp forwards, or from your friends or relatives, you can not only dodge them but also educate others on busting such myths.
Don’t let such myths drag you away from a well-planned financial future. Stay in the game and Happy Investing!
Too know more about gaining financial freedom, you can also check out this free e-book and begin your journey towards wealth creation.
(Saarthi for your dreams)