When it comes to investing, many people may be intimidated or turned off based on what they have heard. Unfortunately, however, common beliefs about investing, such needed a professional to be able to invest, are not accurate. In this article, we will discuss and debunk five common misconceptions about investing.
1. You need a professional to help you invest
A common investing myth is that you need a professional or wealth manager to give you financial advice to make investments. When you choose to start investing, you typically do need a broker to place orders on the stock market. But a financial planner is not as necessary as it was in the past, and for some, not necessary at all. With the wealth of knowledge that is available on the Internet, it is possible for you to make your own investment decisions. Previously, you would have to go to the library and find financial literature to learn about investing. And even then, real time information was not available. Today, you can find a stock’s price in a matter of seconds.
You should only ever invest in financial products that match your knowledge and experience. With patience and discipline, it is possible to teach yourself all necessities. Do it yourself (DIY) investing is usually less expensive, as you do not have to pay a professional to actively manage your investments. We are an execution-only broker, meaning we cannot provide investment advice of any nature. This is one way in which we are able to keep our fees low. If you are new to investing or are just starting to invest on your own, this video can teach you about different investment strategies and help you to determine the type of investor you’d like to be.
2. You need a lot of money to invest
Another misconception is that you need a lot of money to be able to invest. Investing has evolved and is more accessible than ever, especially now investing with low fees has become possibility. You are enabled to invest small amounts, since low fees will have a smaller impact on your returns. Lower fees also make it possible to make multiple small investments and top them up as you go, versus having to invest one large lump sum. Even modestly sized investments can result in sizable returns over time.
3. You are not the right age to be investing
Some people may believe that they are too young or too old to begin investing. Although age may impact your investment strategy, investment goals, or risk profile, investing and personal finance do not have an age limit. For example, younger individuals may put off investing for retirement as it seems far away. However, by investing at a young age, you are able to benefit from compound interest and have more time to recover from any potential losses. On the other hand, those who are older may not to take on that much risk as they have less time to recover from potential losses, but still, for example, may choose to invest with the goal of receiving a higher rate of return than a savings account is offering. Whether your investment plan is focused around the short term or the long term, it is advisable to never invest money you need now or enter into positions which could cause financial difficulties. If you do not have an investment plan yet, this video shows you how to define your investment goals and build a healthy portfolio.
4. Investing requires a lot of time
It is a common misunderstanding that investing is a big time commitment. If it is your first time investing, it may be beneficial to spend some time to do your homework and get familiar with it. After doing so, the amount of time needed to invest is dependent on your strategy and goals. Take, for example, investing versus speculation. The goal with investing is to generate a positive return by taking on an average or below-average amount of risk. Investing is most often in line with a long-term buy and hold strategy. This approach is more hands-off and you can monitor your investments in intervals rather than having to respond to constant market fluctuations. In contrast, when you speculate, you execute transactions that have significant risk of losing all value, with the hope that you will receive a substantial gain. Since there is more risk involved, speculators often make short-term investments whereby the time horizon is less than one year. Speculation typically takes more time compared to investing as it can require closer monitoring and responses to the market.
5. Stocks are the only option
While stocks are one of the most common types of financial products to invest in, there are plenty of other types of investment products to choose from. For example, exchange traded funds (ETFs) can be suitable for all types of investors that range in experience. An ETF is a type of financial product that is composed of a collection of securities that generally track different benchmarks, such as an index. You can think of an ETF as a basket of goods. They are similar to mutual funds but are listed on an exchange, have the trading behaviour of a stock, and are generally more cost effective. ETFs have multiple underlying assets, whereas stocks just have one. Therefore, they assist in risk management through diversification. Since we want to make it as easy as possible for you to be able to diversify your portfolio, we offer a selection of ETFs that you can invest in commission free. Aside from stocks and ETFs, DEGIRO offers a wide variety of products to invest in. See here for an overview of the products available on our platform.
Aside from the aforementioned, unfortunately, there are many other misconceptions and misinformation about investing. Whether you’re new to investing or have been doing it for years, it is important to educate yourself and separate facts from fiction in order to be successful.
The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products that match your knowledge and experience.