I come across a lot of investment myths on a regular basis because I work in the personal finance industry. It’s sometimes difficult to believe that well-educated people believe in such investment myths. Nobody will show you how to invest because it is an art. Everyone has their own approach to investing. The most important thing is that you feel at ease with your investment strategy. For example, if I am not satisfactory investing in the stock market, I should avoid it rather than risk losing money and later regretting it.
It is acceptable that you will never achieve perfection in the art of investing. Expert assistance is always available. There’s nothing wrong with it, but we’re making a huge mistake if we believe/trust the “experts” without question. They may recommend high-risk investment options, which I may or may not be comfortable with as an investor. Typically, experts depend on well-worn investment meant myths. The explanation for this is that in such situations, persuading a potential investor is easy. In this article, we’ll look at some of the most well-known investment myths.
INVESTMENT MYTH #1: You think you need a lot of money for investment
Nope. (But there are a few hints). You can begin investing today with very small money. Like, right now. Even if you can only afford only 2000 to 4000, it’s a good habit to build now. Stock marketing, mutual funds come up with greater investment options.
I hope that once you get started, you’ll begin to see your money going for you as the dividends roll in. It might be small, some bucks here and there. But once you start to understand your money working for you, I hope that you’ll be excited to keep investing. When you pool your money in mutual fund investment you can get good returns and lots of benefits. So, disclose this myth from your life that you need lots of money as in investment.
INVESTMENT MYTH #2: You think investing is too Risky
Different investments come with varying levels of risk. So, if you’re a risk-averse person, you can find ways to invest that correspond to the level of risk you’re willing to take. Asset allocation and diversification are the names of the game.
The act of investing in various asset groups, or types of investments, is known as asset allocation. You choose which assets to include in your portfolio. Stocks (equities), bonds (fixed income), assets, commodities, and real estate are the most common options for investors.
In an ever-changing market, diversification is the method of balancing the classes within these classes so that they balance one another.
With help of the best mutual fund agents and real advisors, you’ll take a risk tolerance questionnaire. Then, investments will be suggested to you based on your risk tolerance, investment goals, investment portfolio, and your time horizon for investing.
INVESTMENT MYTH #3: Too Young to Start Investments
The sooner you start investing, the more money you will amass. You will still have time on your side, which means that if the market falls, you will have enough time to withdraw your money if you stay invested. You can still be a novice and become a good investor. Your money is managed by professionals in mutual funds, which lowers the risk.
It is even more important to invest if you are young.
You’re still curious why.
It’s because you’ll have more time on your hands. For instance, let’s say you’ve made an Rs.20,000 investment. Since the economy is currently experiencing a downturn, the value of your investment will decrease.
However, if you stay in the market for a long time, the market will rebound and you will see a return on your investment. It makes no difference if you are a complete novice when it comes to investing.
Your money is managed by the AMC, or asset management company, when you invest in mutual funds, so it is less dangerous.
INVESTMENT MYTH #4: Retirement Funds are Pointless When You Have an Emergency amount saved
Both retirement and an emergency fund are important because they cater to various needs. You will retire one day, regardless of your occupation. It’s also a given that you’ll need sizable savings to account to cover medical expenses and emergencies. Typically, an emergency fund would have enough money to last 3-6 months. As a result, a retirement fund and an emergency fund must be treated differently. Because of their diversity, mutual funds will assist you in this process. Your capital will be invested strategically in a variety of assets, including equity, debt, and money market instruments. What you need to know is that an emergency amount and a loan fund are not the same things. For example, we know you’ll retire at 60, which is when the retirement fund will begin to pay out. The emergency fund, on the other hand, is for unexpected incidents such as an accident.
INVESTMENT MYTH #5: Diversification is the safest way to reduce risk
One of the most popular investment half-truths is as follows. It is common knowledge that diversifying your portfolio is essential to minimize risk. Although this is true in several ways, most active investors believe that you can focus your investments on a smaller number of investments. Their track record bears witness to this.
What you should know is that diversification was developed out of the belief that spreading your investments across non-correlated assets would minimize overall portfolio risk. In general, this is right. However, since most people do not invest in non-correlated properties, they do not benefit from this definition. They simply believe that by investing in eight different mutual funds, they would be secure.
INVESTMENT MYTH #6: Your Future Is Secure with Savings
It is important to save in order to protect your financial future. It is, however, only the first move. You can see your wealth diminish if you do not invest your savings in goods that will outperform inflation. For example, if annual inflation stays at about 6% and your investments are held in a savings account with a 3-4 percent annual return, you are essentially eroding your income.
Even if you keep your money in a fixed deposit, most reputable banks now pay a 5-5.5 percent interest rate. Your post-tax returns from these FDs would be 3.5-3.7 percent if you are in the 30% tax bracket. And if you pay 20% in taxes, the after-tax returns would be about 4-4.4 percent, which is lower than the average inflation rate of 5% over the last decade.
As a result, it is only wise to diversify your investments through asset classes such as equity, debt, gold, and real estate in order to outperform inflation and build wealth over time. It’s not just about saving; it’s about investing in the right financial instruments to protect your financial future.
INVESTMENT MYTH #7: When the market is in trouble, sell
One of the most common misunderstandings is that selling while the market is in trouble is a good idea. While this may not be a fallacy on paper, the fact is that when the stock market falls, people’s behavior appears to become irrational. If you sell when the market is down, you lock in your losses, and if you buy back in when the market is up, you pay more and lose out on any of the profits. Rather than selling when the market is down, it might be a better option to buy more – especially if you can find some good deals.
INVESTMENT MYTH #8: Stocks are the only choice
When it comes to saving, it’s all too tempting to get mixed up in stocks. Other types of investments, on the other hand, will provide you with some variety. Investing options include bonds, real estate, commodities, and even currencies. Many investors, however, would profit from a portfolio that focuses heavily on stocks. However, if the stock market makes you anxious, you have other choices. Consider allocating up to 20% of your portfolio to asset groups other than stocks and bonds.
INVESTMENT MYTH #9: Credit cards will get me by any financial crisis
Any financial crisis can be solved by using credit cards. Using credit cards to get you through a financial crisis is a surefire way to end up in debt. You’ll end up repaying even more than you borrowed due to interest. When you pay with plastic, you’re more likely to go overboard.
Credit cards should not be used in an emergency situation, such as work loss, divorce, or sickness. It’s best to set aside three to six months’ worth of living expenses as an emergency fund to ensure that you’re prepared for something.
INVESTMENT MYTH #10: I will outperform the market
No way, no how. According to Hastings, this should not be your target. “Even the most seasoned investors will fall for a hot tip now and then, and it seldom works out.” Even sure-thing IPOs for trendy companies will disappoint, so it’s always best to skip the hype and focus on building a well-balanced, diversified portfolio that will last.
INVESTMENT MYTH #11: Buying life insurance is a long-term investment.
One of the most common investing blunders is believing that life insurance plans are investment products that also include life insurance. Not at all. Insurance plans are essentially risk-mitigation mechanisms that will assist the family in the event of your death. As a result, you can purchase a term insurance policy and get a large amount of coverage at a low premium. Instead, many investors end up purchasing low-coverage insurance plans after being advised by insurance brokers that they will receive a guaranteed higher return and that if anything happens to them during this period, their families will be compensated. This is a prime example of mis-selling by telling a close-to-truth lie.
In fact, most policies give suboptimal returns of 3-6 percent on the lump sum amount promised at the end of the investment period. Furthermore, the guaranteed life insurance coverage of these plans is just enough to cover a couple of years’ worth of expenses for your dependents. Simply, put neither you nor your family are adequately insured in the event of a disaster, nor is your money growing at the required pace to protect your future.
As a result, it is preferable to invest in mutual funds to build wealth and buy term insurance to protect against risk. Rather than attempting to combine insurance and investment, you will be better off doing it this way.
Mutual Funds are the best option for investment: How?
- Investment is simple and convenient: Investing in mutual funds is simple and convenient. There is no paperwork involved in the investment process. One should keep an eye on the market and make appropriate investments. Furthermore, the provision of switching between funds and portfolio rebalancing allows one to keep returns in line with expectations.
- Less Initial Investment: A broad mutual fund portfolio can be built with as little as Rs 500 in initial investment. One may also invest in a lump sum or in a systematic investment plan (SIP). In contrast to lump-sum investments, a SIP reduces total investment costs while allowing compounding to work in your favor.
Before making any investment decision, it is important to understand the pros and cons of the same Mutual fund as the wiser option to pitch in. The is one of the key distinctions between seasoned and amateur investors. Happy Investing WealthBucket!
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