Introduction to Debunking Investment Myths
Investing can seem scary, especially if you are new to money stuff. There is tons of information out there and lots of people believe things that are not true. But don’t worries we will clear up five common myths about investing that might be holding you back.
Our goal is to help you feel more confident about investing by showing you what’s real and what’s not. We want you to know the truth so you can make smart choices with your money and start investing like an expert.
If you are just starting out with investing, it’s important to know the facts so you don’t get confused. This guide will give you all the information you need to understand investing better and build a solid foundation for your investment pursuits.
Let’s take a look at each myth and see what’s really going on, with easy examples to help you understand better.
Myth 1: "Investing is only for the wealthy"
The myth that “Investing is only for the Wealthy” suggests that you need to have a lot of money to start investing. However, this is not true at all. In fact, anyone, regardless of their income level, can start investing with whatever amount of money they have available. Thanks to the rise of affordable investment platforms and apps like Zerodha, Upstock, Grow, Angel one, Robinhood and Acorns, people can now begin investing with just a few amounts.
Let’s break it down with some examples:
Mr. Manoj, a college student working part-time, starts investing Rs. 1000/- per month in mutual fund through a micro-investing app. Over time, his small contributions grow into a substantial portfolio, demonstrating that investing is accessible to everyone, regardless of income level.
It’s essential to recognize that everyone can benefit from investing, regardless of their income level or net worth. So don’t let this myth hold you back from embarking on your own investment journey. Start small and watch your wealth grow over time. Remember, investing is about building wealth and securing your financial future. It’s not exclusive to the privileged few wealthy people.
Myth 2: "Investing is like gambling"
Some people think investing is similar to gambling, but that’s not quite right.
Let me explain the difference in simple terms:
Investing is like planting seeds in a garden. You choose where to plant them based on what you think will grow best, and you take care of them over time. This is similar to investing because you are making choices based on research and planning for the future.
On the other hand, gambling is more like playing a game of chance, like rolling dice or spinning a roulette wheel. You don’t have much control over the outcome, and it’s mostly luck.
For example, you have some money to spare. You could invest it in a mix of different things like shares, mutual funds, bonds and real estate, just like planting different kinds of seeds in your garden. Over time, your investments might grow and give you more money.
But if you were to gamble that money away in a casino, you’re relying purely on luck. You might win big, but you could just as easily lose everything with no control over the outcome.
So, while both investing and gambling involve risk, investing is about making informed choices and planning for the future, while gambling is more about taking chances and hoping for the best.
Myth 3: "You need to be an expert to invest"
The myth that “you need to be an expert to invest” is a common misconception that often discourages people from entering the world of investing. However, it’s important to understand that while expertise can be beneficial, it’s not an absolute requirement to begin investing. Here’s why:
- Easy-to-Understand Information: Just like you can learn about gardening from books or online videos, you can easily learn about investing. TV channels, websites, videos, and even apps can teach you the basics without needing to be an expert.
- Different Ways to Plant: Just like there are different ways to plant seeds (in pots, in the ground, etc.), there are many ways to invest. You can put your money in things like stocks, mutual fund, bonds and real estates.
- Apps make it Simple: Just like how some gardening tools make planting easier, there are apps and websites that make investing simple. They help you where to put your money without needing a lot of knowledge.
- Start Small: You don’t need to plant a huge garden all at once. You can start with just a few seeds. Similarly, you can start investing with a small amount of money. This helps you learn without risking too much.
- Learn as You Go: Just like you learn more about gardening as your plants grow, you will learn more about investing as you go along. Every time you invest, you’ll learn something new.
So, just like you don’t need to be a gardening expert to start growing plants, you don’t need to be an investing expert to start investing. With a little bit of knowledge and some simple steps, anyone can give it a try.
Myth 4: "You can't beat the market"
The myth that “you can’t beat the market” suggests that it’s impossible for individual investors to outperform the overall market. While it’s true that consistently beating the market is challenging but it’s not entirely impossible. However, there are examples and explanations that challenge this myth:
- Smart Investors: Some investors are really good at picking the right stocks and making more money than the average. For example, Rakesh Jhunjhunwala, Radhakishan Damani and Warren Buffett are famous for consistently beating the market over several decades through his value investing approach. Despite fluctuations, their long-term returns have surpassed those of the broader market indices.
- Different Ways to Play: Just like there are different games you can win with different strategies, there are different ways to invest. Some people pick stocks they think will grow a lot (like betting on a winning horse), while others buy a little bit of everything and hope the overall market goes up (like buying a ticket for every horse in a race).
- Learning from Mistakes: Sometimes, investors make mistakes and lose money. But they can also learn from those mistakes and do better next time. It’s like if you lose a game of chess, you learn what went wrong and try to win the next game.
- Following Successful People: Some people watch what successful investors do and copy them. If they see someone who’s really good at investing, they might try to do what that person does to make money too.
Remember that beating the market consistently is challenging, but with research, discipline, and a long-term perspective, it is possible to achieve satisfactory returns.
Myth 5: "You need a lot of money to start investing"
The myth that “you need a lot of money to start investing” is a common misconception that can deter many people from taking their first steps into investing. Many people believe that significant capital is required to start investing, but this is a common misconception. However, this myth is not only inaccurate but also potentially detrimental in today’s modern era as it prevents individuals from harnessing the power of compound interest and long-term market growth to secure their financial futures. However, there are examples and explanations that challenge this myth:
- Mutual Funds: Traditionally, investors needed to purchase whole shares of stocks, which could be expensive for high-priced companies like MRF, Tata Elxsi, Amazon or Google. However, with mutual funds, individuals can invest in these companies with as little as Rs. 100 through platforms like Zerodha, Grow, Upstock or Robinhood. This allows individuals to build a diversified portfolio even with limited funds.
- Robo-Advisory services: Robo-advisors like Angel broking, 5Paisa, ET money, Scripbox, Betterment or Wealthfront use algorithms to create and manage investment portfolios based on investors’ goals and risk tolerance. They typically have low minimum investment requirements, sometimes as low as Rs. 100.
- Peer-to-Peer lending: Platforms like Lendbox, Rupeecircle, Faircent, LendingClub or Prosper enable individuals to invest in loans to other individuals or small businesses. Investors can start with as little as Rs. 500 per loan and diversify their investments across multiple borrowers to manage risk.
- Education and Research: Investing requires knowledge and understanding of financial markets, but it doesn’t necessarily require a large upfront investment. Websites like ET money, Mint, Investopedia and YouTube channels like FinnovationZ, Pranjalkamra offer free educational content on investing fundamentals, stock analysis, and portfolio management. By dedicating time to learning and research, individuals can make informed investment decisions regardless of their initial financial resources.
By leveraging these examples, individuals can overcome the myth that substantial wealth is not needed to start investing and take proactive steps towards achieving their financial goals.
Conclusion:
Now that we have debunked 5 common investment myths, it’s time for you to start investing confidently. Remember, investing is not limited to the wealthy, and you don’t need a lot of money to get started. By starting small and being consistent with your contributions, you can begin your investment journey.
While investing does involve risks, understanding and managing these risks is crucial. Diversification and taking a long-term perspective will help mitigate potential losses.
You don’t have to be an expert to invest. There are plenty of resources available to help beginners learn about investing, and starting with simple investment strategies can build your confidence.
If you still feel overwhelmed, don’t hesitate to seek professional advice and guidance. Financial advisors can provide personalized recommendations based on your financial goals.
So go ahead, start your investment journey armed with knowledge and debunked myths. Make informed decisions and watch your wealth grow over time. Happy investing.
Very well summarised article specially for the people who are sceptical about the unconventional methods of investments and the associated risks.
Nicely articulated and easy to understand, for investors who wants to start their investment journey. Anticipating more such tit bits on investment from the blogger.