Common Myths and Misconceptions About Investing

April 18, 2022 by First Federal Bank

investingIt’s some of the most common financial advice — if you want to grow your savings, invest. However, getting started with investing can be a daunting task, especially with so many myths surrounding the topic. We’re here to clear the air and address some common misconceptions about investing.

Fees will negate my earnings

Investing has a reputation for being expensive — but in reality, you don’t have to break your budget to pay fees associated with growing your wealth. Lauren Ward, a contributor to Money Under 30, explains investment advisors only charge about 1% of the money in your investment account per year — so if you’ve put $5,000 in your investments, you’ll pay your advisor $50 for their services. For an even more affordable option, Ward suggests considering a robo-advisor, which generally offer fees with around a 0.25 percent average. So instead of paying $50 to an advisor to manage $5,000, you’d pay just $12.50 to a robo-advisor.

Stocks are the only way to invest

Stocks aren’t the only investment vehicles on the market. You can also put your money into real estate, bonds, currencies, and even commodities like precious metals, lumber, livestock, corn, wheat, and oil. These investments can help diversify your portfolio, giving you extra reassurance when one avenue of investment is underperforming. That said, the majority of investors should have portfolios that largely center on stocks. Miranda Marquit, a contributor to U.S. News & World Report Money, suggests up to 20% of your portfolio should be comprised of non-stock asset classes.

The market is too unpredictable — I’ll probably lose money

While investing involves some degree of risk, the market isn’t quite as volatile as it seems. When tracked over years, the stock market consistently trends upwards. That said, some investments are riskier than others. If you’re nearing retirement — or are simply averse to risk — you have a few options. Namely, you can choose to put your money in bonds or certificates of deposit. You can also diversify your investments to protect your money, explains Ward.

You have to know a lot about the stock market

Investing can be overwhelming at first, but there’s good news — you don’t need to spend your days poring over business news and keeping up with the latest trends to earn money in the stock market. NerdWallet contributor Alana Benson explains investing in an index fund is a great way to build wealth over time, without a lot of legwork. While it’s definitely smart to be informed about where your money is going, index funds can take some of the burden off you by providing pre-made, diversified portfolios.

You need a lot of money to get started

You don’t need to have thousands of dollars on hand to invest. While there were substantial minimum investment requirements in the past, nowadays people from a wide variety of financial situations can invest. According Marquit, apps like Acorns and Betterment allow you to get started with relatively small sums. Betterment has a monthly minimum of $100, while Acorns will let you round up your purchase amounts and invest the change. So, whether you’re a young adult just getting started or a senior on a fixed income — or anywhere in between — you’ve got more investment opportunities than ever before.

For more insight and tailored advice on investing, consult with a financial planner.

Categories: Financial Education

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