3 Investing Myths That Can Cost You Big Time
KEY POINTS
- Investing can be so simple as to be boring -- just buy index funds or ETFs.
- The best brokers let you get started with any amount of money.
- The longer your investing timeline, the more wealth you can build.
When you're ready to start investing, the whole process can be kind of mysterious. What kind of account should I open? How do I choose a stock broker? And wait, why am I doing this again!?
Ultimately, you're investing to set yourself up for more wealth in the future -- many people do it to build a comfortable retirement for themselves, for example. If you're new to this space, you might've assumed the following investing myths were fact -- so keep reading to find out the truth.
Myth No. 1: "Investing is confusing."
OK, I am definitely guilty of thinking this -- coming to work for The Ascent more than two years ago went a long way toward building my investing knowledge. Not everyone has the privilege of working for an outlet focused on personal finance, though. So let me clear this myth up for you here and now.
Investing can be as simple -- or complex -- as you make it. Want to dive into cryptocurrencies or other speculative investments? You can do that. But if you're just hoping to grow your money over time to give yourself a comfortable retirement someday, you can easily do that, too.
Honestly, when done effectively, investing is more boring than confusing. You can easily buy shares of an index fund (such as one that tracks the performance of the S&P 500) instead of putting your money into individual stocks. Investing in stocks is certainly a great option (especially if you can build a diverse portfolio across different companies and industries), but it could involve more time researching companies than you're interested in.
And if you can buy and hold those investments over a long period of time (say, at least five years), you're more likely to come out ahead. The stock market has returned an average of about 10% per year over the last five decades, and that figure accounts for good years and bad. Frequently selling your investments and buying new ones isn't the best approach to investing -- buy and hold is a much better option for just about everyone.
Myth No. 2: "I don't have enough money to invest."
Yes, I fell for this myth, too! (See why I'm a great person to break down these misconceptions and give you the truth?). Admittedly, it was only recently that I broke out of the cycle of living paycheck to paycheck and had enough income to worry about the future. But I sometimes wish I could go back in time and tell younger me that even $25 or $50 a month was still worth contributing to a brokerage account.
The best brokers have low minimums to start investing -- you could open an account with $0 and just funnel in whatever money you can spare every week or month.
And don't think that a lack of cash has to keep you from buying shares of companies you believe in, either. You could opt for an account with one of the best brokers for fractional shares, giving you the opportunity to buy a piece of a share for one of those companies instead of a whole share. This is still an effective way to build wealth, and if you invest in companies that pay dividends to shareholders, you'll just get a fraction of that dividend.
Myth No. 3: "I can afford to wait to start investing."
Finally, you might assume that you don't need to worry about investing now -- especially if you're on the younger side. Why worry about your golden years if you're in your 20s? Two words: compound interest.
This is when your money grows with interest, and then that interest is reinvested, growing even more interest. Having a long timeline is the surest way to make money from investing, so if you want to give your cash the best chance to grow, start now.
Let's say you're 25 years old, and can afford to invest $100 per month. Even if you're never able to bump up that figure (and this is unlikely; the further into your career you are, the more likely it will be that you'll earn more), here's what you can expect that money to turn into over time, assuming just an 8% annual return:
Years investing $100 per month | Growth with an 8% annual return |
---|---|
10 years | $17,383.87 |
20 years | $54,914.36 |
30 years | $135,939.85 |
40 years | $310,867.82 |
In this scenario, you have the luxury of time, and at age 65, have a solid nest egg waiting on you. But if you instead wait until age 40 to start contributing that $100, and have just a 25-year window before your desired retirement age of 65, you could end up with just $87,727.13.
Losing those 15 years cost you more than $223,000 -- and over those 15 years, your own contributions to your account would have amounted to just $18,000.
If you've fallen victim to any of these investing myths, you're not alone -- I'm right there with you. Luckily, now you know the truth, and the sooner you take action to open a brokerage account and start putting your money to work for future you, the better off you'll be.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
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