14 Investing Myths That May Be Limiting Your Wealth Potential

Investing can be intimidating, no matter what your background is. The media and, possibly, people you know produce a near-constant flow of investing information, jargon, predictions, and contradictions. It's no wonder investing myths persist.

Those myths can be damaging to you financially if they're influencing your investment decisions. You might end up investing too conservatively or, worse, not recognizing the risks you're taking.

Take time now to read through these 14 common investing myths as a quick reality check. You'll be a better investor for it.

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The most damaging investing myths are those that keep you from investing at all. At the top of that list is the idea that stocks are too risky.

Don't get me wrong. Any stock you buy can lose value. So there is always the risk of loss. But you can manage that risk somewhat through simple tactics like diversification and long holding periods.

Plus, you get rewarded for taking a bit of risk. Even if you invested very conservatively, your earnings potential with stocks is much more than your earnings potential with cash.

ALSO READ: Just How Safe Is the Stock Market Right Now?

Investing in stocks can be expensive. As of this writing, a single share of electric automaker Tesla will cost you $225, which may be more than your monthly investing budget.

Fortunately, you have other options. You can buy shares of an exchange-traded fund, or ETF, like the SPDR Portfolio S&P 500 ETF, which currently trades for around $43. One share of an S&P 500 fund like this one provides exposure to Tesla and 499 other large and leading companies.

You could also find a brokerage that supports fractional shares. That way, you could buy fractions of stocks for lower prices. Rather than spend $225 on one share of Tesla, for example, you could spend $22.50 on a 10th of a Tesla share.

Bonds, like stocks, come in a range of risk profiles. At the safe end of the spectrum are bonds issued by the U.S. government. These are considered as safe as cash. Junk bonds, however, are far riskier. These pay a high yield because the issuer has poor credit qualifications. Because of that, there is a greater chance the issuer will stop making its debt repayments.

If the bond issuer defaults, you could lose all or most of your investment -- just as you might on a stock position that goes sideways.

ALSO READ: Stocks vs. Bonds and the 60/40 Rule

Some investors believe the way to maximize returns is to avoid all market downturns. There are two problems with this idea. One, the math doesn't work. And two, it's impossible to predict short-term stock market trends accurately and consistently.

Mathematically, the most profitable strategy requires you to participate in market downturns. Sure, you'd sell at the market's high point, but you'd have to buy at the low point. Unfortunately, those highs and lows aren't obvious in the moment. Those turning points aren't usually evident until months later, long after your trading opportunity has passed.

A better approach is to accept market downturns -- and the recoveries that follow -- as a normal part of investing.

From an outsider's perspective, it can appear that rich investors get richer at the expense of "regular" people. Buy into this idea, and you might decide not to invest at all.

Here's the thing. Yes, institutional investors have tools that help them parse information and trade faster than you can. And unscrupulous leadership teams may occasionally withhold relevant information from shareholders. These circumstances, however, don't prevent you from making money in the stock market.

You can work around those challenges by investing for the long term and holding a diversified portfolio.

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Tens of thousands of retirement savers invest in their 401(k)s monthly with no specialized knowledge. You can do the same, either within or outside a 401(k).

Simply follow the 401(k) model for best results: Invest regularly in diversified funds. Choose funds with low expense ratios whenever possible.

Increasing your investing knowledge will help you, especially if you're interested in owning individual stocks versus funds. But it's not a requirement. As famous investor Warren Buffett says, investing is a "simple game."

ALSO READ: 10 Investing Concepts All Beginners Need to Know

Home runs in investing are awesome. But it's usually better to let these happen serendipitously versus chasing them. Being on the hunt for the "next big stock" can encourage risky behaviors, like frequent trading or overspeculating.

If you do want to speculate, keep these positions limited to a small percentage of your portfolio. They're likely to be volatile. You'll appreciate having a core group of less reactive holdings as a counterbalance. Think of these as your base hitters, which are as important to wealth building as your sluggers.

The S&P 500 index fund is a popular choice as a core investment. These funds hold 500 leading U.S. public companies across 11 economic sectors.

While all S&P 500 funds should hold similar stocks, they can differ dramatically in their expense ratios. And a fund's expense ratio directly impacts your returns, as well as that fund's performance relative to the S&P 500 index. Even a small expense ratio difference can impact your bottom line by tens of thousands over time.

Lean into funds with low expense ratios. It's one of the best indicators of future fund performance.

ALSO READ: What Is a Good ETF Expense Ratio?

History provides context for investors, but it doesn't predict the future. One reason why is that the factors affecting the stock market are constantly evolving. The economy today, for example, is very different than the economy of 30 years ago -- when the internet was a fledgling industry and no one had heard of Bitcoin.

Look at the history of your funds and stocks, but don't bank on that history repeating itself.

Continuing to invest when share prices are down could be the best way to enhance your long-term returns. It's true.

There are two components of your unrealized investing profits. One is the price you pay for your shares. The other is the current market value of those shares. By continuing to invest when share prices are down, you lower the average cost of your portfolio. That positions you for bigger gains later when share prices recover.

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Diversification is the investing equivalent of not putting all your eggs in one basket. The thing is, it's more nuanced than holding 20 or more stocks. To diversify appropriately, you should have exposure to multiple economic sectors and asset classes.

In practice, you could do this with only two positions -- an S&P 500 index fund plus a U.S. Treasuries fund. The S&P 500 index fund provides the broad sector exposure, while the Treasuries fund brings another asset class into your portfolio.

ALSO READ: 2 ETFs That Are All You Need for Retirement

Mathematically, high-rate debt costs you more than you're likely to make in the stock market. That fact causes many would-be investors to avoid investing until they've paid down their debt.

The problem arises when this strategy keeps you from investing indefinitely. Worse, it can keep you from taking advantage of fruitful investing opportunities like 401(k) employer matching programs.

You can invest while you pay down your debt. It just takes some careful budgeting. The benefit is that you'll build wealth momentum earlier in life.

The long-term average annual return of the stock market is about 7% after inflation. If you're invested to earn a below-market 6% average annual growth, you'll double your money every 12 years. That beats the timeline for cash savings several times over.

The takeaway? Give yourself enough time, and you don't have to beat the market to get rich investing.

ALSO READ: 2 Growth Stocks That Could Beat the Market Over the Next 5 Years

Many investors think of gold as a safe haven and natural store of value. This is why you'll often see gold prices rise in times of economic uncertainty. Investors will move into gold as a shelter from stock price volatility and other factors, like inflation.

Unfortunately, those spikes in gold prices are transitory. And they can be followed by dramatic reductions. Between 1980 and 2000, the price of gold in today's dollars fell from about $2,500 to less than $500. Gold's current price is about $1,700.

Gold may have intrinsic value, but its record as an appreciating asset is inconsistent. How that plays into your definition of "safe" is up to you.

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Perhaps the biggest misconception is that investing has to be complicated. It doesn't -- if you adhere to a few simple guidelines. Most importantly, give yourself a long timeline. The stock market has a better record over 10 years versus five years or three years.

Beyond that, invest in established companies and keep investing, even when the market's down. And hold some bonds to balance the volatility of your stocks.

You may not beat the market using this formula, but you don't have to. In 10 years, if your return averages somewhere around 6% net of inflation, you're on the way to serious wealth momentum.

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