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Let's Abandon These 5 Stock Market Myths for a More Profitable Future

By Selena Maranjian - Jun 7, 2021 at 6:53AM

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Stock market myths can be disastrous to your financial security. Don't let these ones wreck your retirement.

We all go through life believing in myths. Believing some of them may not hurt us too much -- such as the myth that we all need to drink eight cups of water a day. (There's no one-amount-fits-all -- much depends on your body and your activity level.) Believing other myths can hurt us, and that can be particularly true for financial myths.

Here, then, are five investing myths you should ignore in order to build a more financially secure future for yourself.

A yellow road sign says Reality Check Ahead.

Image source: Getty Images.

1. Investing is for rich people

If you're staying away from the stock market because you think stock investing is only for rich folks, you're really missing out. Many good brokerages these days charge no trading commission at all (for buying or selling shares of stock), and many have low minimum required investments for opening accounts. Better still, you can buy as little as a single share of stock, if that's all you can afford. Or, with, say, $200, you could buy 20 shares of a $10 stock or two shares of a $100 stock. You don't need to be rich.

2. Investing in stocks is like gambling

Many people think that investing in stocks is like gambling -- and that sometimes is true. If you're investing in penny stocks, or you're day-trading, or you've borrowed to the hilt from your brokerage in order to invest on margin, or you're chasing a high-flying stock without knowing anything about it, you are gambling.

But vast fortunes have been made in stocks without gambling, and you can pursue that, too. You just need to focus on great companies, ideally ones that are healthy and growing -- buying them at attractive prices and then holding on for many years. Think about companies such as, Apple, Microsoft, Nike, Starbucks, Pfizer, Costco, Visa, and McDonald's. How risky do you think it is to invest in them, believing that they will grow larger in the years ahead? That's not gambling.

3. A great company means a great stock

The companies above are all great companies, but that doesn't mean you should run out and buy them at any price. When investing, for best results, you want to identify good companies trading at great prices -- or, better still, great companies trading at good or great prices.

Here's a shocking cautionary tale: In 2000, Cisco Systems, the much-respected networking titan, hit an all-time high stock price. Then, along with much of the stock market, it sank when the internet bubble burst. Today, in 2021, the stock has still not regained the ground it lost. Anyone who bought into Cisco near that high price is still underwater. The company is still around after all these years, and raked in close to $50 billion last year, with a hefty net profit margin above 20%. Its prospects are solid, but that might mean little to those who bought in 2000.

Person looking at opposing signposts reading Facts and Myths.

Image source: Getty Images.

4. There's a good time and a bad time to invest

Many people also mistakenly assume that there are good times and bad times to invest in stock. They may think (or may be told by some guru on TV) that since the stock market has risen for three years in a row, it's due for a correction. They may sell out of many or all of their stocks, waiting for that correction -- which may not occur for another two years. They may end up on the sidelines while the market surges 20% or more. What they're doing is called "market timing," and it's generally an ill-advised endeavor. No one knows what the market will do in the short term. In the long run, though, it has always risen.

This myth is actually half-true, because in many ways, just about any time is a good time to invest in stocks, as long as you're ready to -- with no high-interest-rate debt and a basic grounding in stock investing. A good way to approach investing is by dollar-cost averaging -- regularly plunking your hard-earned dollars in the market, whether it's rising or falling. You'll get some shares at higher prices and some at lower prices, but you'll keep accumulating shares and over the long run, they will likely keep rising.

5. Investing takes a lot of time

Finally, many people may be avoiding the stock market because they think it will take up a lot of their time. It may -- if they are active investors, studying companies, deciding which ones to invest in, and then deciding when to sell. But investing in the stock market can take very little time if you go about it in the simplest way -- by investing in one or more broad-market index funds.

An index fund will quickly have your money spread out across the many companies in the index, and you'll earn the same return as the index (less fees -- and there are many good, low-fee index funds). There's a good chance your 401(k) plan offers one or more index funds, and you can invest in them through brokerages, too, in a regular, taxable account -- and/or in your IRA. Even Warren Buffett has recommended index funds for most of us.

So don't let any stock market myths sidetrack you. Most of us need to be saving and investing aggressively, to build a nest egg to live on in retirement -- and it's hard to beat the stock market for long-term wealth building.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Selena Maranjian owns shares of Amazon, Apple, Costco Wholesale, Microsoft, and Starbucks. The Motley Fool owns shares of and recommends Amazon, Apple, Costco Wholesale, Microsoft, Nike, Starbucks, and Visa. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, short July 2021 $120 calls on Starbucks, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$256.80 (-0.94%) $-2.43
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$541.90 (0.23%) $1.23
Microsoft Corporation Stock Quote
Microsoft Corporation
$280.32 (-0.92%) $-2.59
Starbucks Corporation Stock Quote
Starbucks Corporation
$85.72 (-0.01%) $0.01
Apple Inc. Stock Quote
Apple Inc.
$164.87 (-0.29%) $0.48, Inc. Stock Quote, Inc.
$139.41 (-0.99%) $-1.39
Visa Inc. Stock Quote
Visa Inc.
$213.32 (-1.18%) $-2.55
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$45.02 (0.02%) $0.01
Pfizer Inc. Stock Quote
Pfizer Inc.
$49.57 (0.61%) $0.30
NIKE, Inc. Stock Quote
NIKE, Inc.
$114.00 (0.11%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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