Investing is a great way to grow wealth and put money to good use. But buying into misinformation could cause you to make bad choices as an investor. Here are three investing myths you should steer clear of at all costs.
1. You shouldn't start to invest until you have a lot of money
You may be under the impression that you need thousands of dollars to buy stocks or open a brokerage account. Not so. Many accounts don't impose minimums, so you can invest with as little as $100 if that's all you have. While some individual stocks may be out of reach if you're low on funds, these days, it's easier than ever to buy fractional shares, which give you the option of buying a piece of a share of stock.
Prior to investing, you should have a solid emergency fund with three to six months' worth of living expenses tucked away in a savings account. Once you're all set in that regard, there's no need to put off investing just because you're limited financially.
2. You should unload stocks when the market starts to tank
Your goal as an investor should be to make money. When stock values start to fall, it's natural to panic. But if you sell stocks when their value is down, you'll guarantee losses in your portfolio. If you sit tight and wait for the stock market to recover -- which it has a strong history of doing -- then you won't take losses at all.
There is one exception. If you have one or two specific stocks in your portfolio that have been doing poorly, it could pay to unload them at a loss, use that loss to offset capital gains, and then take your freed-up money and put it into stocks with more growth potential. Otherwise, leave your stocks alone when the market crashes.
3. It's impossible to beat the market on your own
There's a reason so many people pay hefty fees to invest in actively managed mutual funds. Some of those funds do a great job of outperforming the broader market and delivering solid returns. After all, they're run by professionals who get paid to pick stocks for a living.
But if your goal is to beat the market, you don't have to pay someone else to do it for you. With the right strategy and research, you have the potential to beat the market on your own.
You're more likely to beat the market if you do these things:
- Focus on stocks with strong growth potential
- Load up on dividend stocks, which provide ongoing income you can reinvest
- Assemble a diverse investment mix
- Hold your stocks for a long time
Of course, if you don't have the time or patience to vet stocks individually, mutual funds may be a good option for you. But remember, the fees you pay will eat into your returns and set you back big time.
You don't need to be a seasoned investor with lots of money to do well in the stock market. You just need to commit to the right strategy and practice the art of keeping a clear head when things go south. Most importantly, though, don't believe the above myths. They could stop you from meeting your goals and accumulating the wealth you deserve.