When someone says the word investment a lot of things come to our mind. Most people think about the money involved along with risks. Some even see this as gambling whereas some think it takes a lot of money. There are many myths and misconceptions surrounding the market. These misconceptions can be due to the lack of experience and knowledge. Like everything else, gathering experience and knowledge takes time. Let's go through the common misconceptions among people.
1. Investing is really risky and is similar to gambling: I have heard this a lot and it is definitely not true. Gambling is not knowing what you bet on if you know the odds, it's not gambling. In the investment and trading field, you will need a lot of time and practice to gain the experience to predict the market. Analyzing the fundamentals data along with technical analysis will help you judge the movement of the stock market to some extent.
2. Only the rich invests: No, it is not for rich people it is for everyone. You can start with a very little amount of money. The investment guru Warren Buffett started his investment career with a stock that cost $38 per share at the age of 11. Now he is one of the richest people in the world. You can also try investing in mutual funds instead of stocks and shares you can start it without any dealing costs.
3. Investing is very difficult: Investing is not at all difficult once you learn to trade and get educated about it. It is time taking but not difficult. Try getting help from a professional or read books about investments there are a ton of free books available on the internet.
4. Investing is not for young people: This is definitely the worst misconception anyone can think of. Like I said previously, Warren Buffett started at the age of 11 and is one of the richest and successful investors of all time. On the other hand, investing from a young age will give you the edge over other investors. Your capital will increase at a compound rate and the longer you trade the more capital you will have.
5. United States Government Bonds Are Risk-Free: All investments do have a risk factor no matter how much safe they sound. Saving money in banks are also a type of investment but a lot safer may be the safest, but hey have you never heard of banks going bankrupt? In the case of government bonds, the prices might fall with an increase in interest rates. Now with the low rates, the government bonds might be at risk.
6. Properties are best investments and cannot lose value: Real Estates are good investments but it does lose value. The price depends on the demand and supply of the market. If you calculate Home loan interest, Property tax, Maintenance Cost etc it might prove to be more of a liability than an asset. You can check out the book of Robert Kiyosaki "Rich dad and Poor dad" which will give you a better insight into this concept.
7. Higher risks will lead to higher returns: It is not always true. Investing in a riskier asset or stock will give you a potentially better return. Small-Cap and Mid-Cap Stocks tend to generate more profit than a Large-Cap stock. A top performing large-cap diversified fund might perform better than small-cap funds.
8. Buy and Hold: Buy and hold is one of the best strategies but it does not mean it will work always. There is always a right time to get in and get out of a stock. Just holding a stock will not help you get the most out of it. The market always depends on the market realities.
9. It’s on a Business channel so it cannot be wrong: People has a misconception that if a news is on a big news channel it has to be right. If it was so, everyone following these channels regularly would be rich. Moreover, they sell advertisements for their company.
10. Hold till capital is recovered: Many of us already did that and failed. Holding your stock that is dropping is riskier as you might end up losing all your capital. Stop loss is a very important thing to have when it comes to investing. According to W.D Gann, you should have a capital to trade 10 times after incurring a loss.
11. How much more can it fall: I personally have been a victim when it comes to this point. A stock fell around 40% and I bought it as I thought how much more it will fall in a day. It fell 10% more and I was already at a loss. It’s better to analyze the company’s fundamental than to analyze how much percentage the stock fell.
12. Large-Cap stocks are safe stocks: Not all large-cap stocks should be considered as good stocks. Just because a stock performed well in the past does not mean it will keep on giving good returns throughout the period of time. Always do check fundamental data and annual reports of the company before investing.
13. Investing is simple you just have to buy low and sell high: Well it is the basic concept of making money but it is not that easy. Timing the market is one of the most difficult things to do while investing. Getting in the stock $0.5 before or later can directly affect your profits when you plan on investing in volume.
Despite so many misconceptions those who plan to move forward with it at a young age generally has the upper hand over others. Always do in-depth research, both fundamental and technical, of a company before making any kind of investment. Greed and Fear are two main manipulators of the market. Keep that in mind and have a happy investing session.