Investments are gaining more and more popularity every year. This is an effective way to generate passive income. However, not everyone considers investing to be a rational way of saving money and achieving additional income. There are many prejudices that can get in the way of a potential investor. Let us examine together what novice investors fear and why their fears are no more than prejudices.
Myth number 1. Investments require large sum of money
This is one of the most common misconceptions because of which many people hesitate to start investing. People think that investment requires a lot of start-up capital. Previously, this was indeed the case. Only very wealthy people could become an investor. It was difficult even for the middle class to break into the stock exchange. However, times have changed, and investments have ceased to be something available only to a select few. Today, you can start investing even with a couple of hundred dollars. Of course, if you live paycheck to paycheck, then spending your last money on investments is extremely unreasonable. Experts recommend starting investing with small amounts. For example, invest no more than 10% of your salary. Later, when you understand the nuances of investing and determine the most effective investment method for yourself, you can move on to larger amounts.
Myth number 2. Investing is hard
This is the second most popular investment misconception. Investing is a really tricky process. In order to make a profitable investment, it is necessary to conduct an elementary market analysis and identify trends. However, it is not at all necessary to understand all the subtleties. For example, if an investor decides to buy shares, then he or she does not need to deeply understand instruments such as futures and options.
Myth number 3. The investor must have an economic education
Indeed, for people who have an education in an economic or financial profile, it is much easier to understand the nuances of the functioning of the market. However, in order to invest, it is enough to know the basics. To do this, it is not necessary to spend several years studying at a university at all. To understand the basics, it is enough to read specialized literature or take thematic courses. The ability to think rationally, adhere to the chosen course and control their emotions is much more important for the investor than a degree in economics. In addition, today there is an opportunity to purchase ready-made investment products, take advantage of ideas from experienced investors or apply for an investment consulting service.
Myth number 4. Investing takes too long time
It all depends on the nature of your working on the exchange. If an investor purchases assets, and then periodically rebalances his or her investment portfolio, then this does not take much time. Long-term investing requires fundamental analysis and market research. Today, almost every broker or investment company publishes analytical materials describing the market situation. Reviews can also be found on the investment marketplaces such as Asset Capital Business or 1Market. Trading is a much more labor-intensive process. Trading on the stock exchange requires constant analysis of market trends. This process takes a lot of time if you trade professionally and on an ongoing basis. But even here there is no need to spend all your time on technical analysis. Almost every trading terminal has built-in functionality for analyzing the dynamics of quotes. It is possible to set up trading robots that independently analyze the market and select the most profitable deal options. In addition, there are specialized services dedicated to technical analysis. For example, Finviz.com, TradingView, etc.
Myth number 5. Investments do not bring stable income
The market is really very unpredictable. You can never be one hundred percent sure that your investments will bring a stable income. However, a lot depends on the tinstruments you have invested in. For example, dividend stocks from reliable issuers are able to provide stable payouts. As a rule, the dividend policy of large companies provides for the payment of dividends to shareholders regardless of the market situation. Naturally, you won’t be able to earn much on dividends. But the fact that investment income cannot be stable is a myth.
Myth number 6. Investing is always a big risk
Many people are afraid to invest because of the possibility of losing their money. It cannot be said that these fears are completely unfounded. This risk really exists if you mismanage your money or follow the wrong strategy. For example, you shouldn’t invest in dubious projects that promise high returns. In 99% of cases, this is a hoax, and you will simply lose your investment. There is also a fairly high risk of losing funds during speculation. The slightest fluctuations in the rate or a mistake in the strategy can leave a trader without a deposit. As for the investments, there are more opportunities to minimize risks. The main instrument for minimizing risks is diversification of the investment portfolio. It implies the acquisition of diversified assets, in case the price of some of them falls, this will be offset by the growth in the value of others.
Myth number 7. Investing is similar to gambling
When it comes to investment, some people immediately think of the movie The Wolf of Wall Street. It tells the story of Jordan Belfort, who made money from the shenanigans in the stock market, seeing it as a gamble. Many people compare work on the stock exchange with gambling or lottery with unpredictable results. This myth arose from the identification of investment with trading. Although it is also wrong to compare trading on the stock exchange with a casino. Speculation in the stock market is a rather unpredictable process, but at the same time a trader does not rely solely on intuition, as, for example, in a casino. Technical analysis, trend detection and trading strategy play an important role here. Investing has even less to do with gambling. Qualitatively conducted fundamental analysis and diversification of the investment portfolio allow you to increase your investments and minimize the risk of losses.
Myth number 8. Fraud, fraud everywhere!
With the growing popularity of investments, the number of fraudulent projects is growing, due to which inexperienced investors lose money. Newbies are lured in with promises of high returns. People, delighted with the opportunity to make quick money, invest money, but in the end they are left with nothing. The most common type of fraud in the financial markets is financial pyramid. Its principle of operation is as follows. Investors are offered to invest in a promising idea that will subsequently bring a lot of income. But the income of investors is formed not at the expense of the profitability of the project, but at the expense of funds, investors who joined it later. The project itself may not work at all, but was invented only for a diversion. Sooner or later, the founders of such a project will simply close it and disappear in an unknown direction, taking the money of gullible investors. It can be quite easy to recognize fraudulent projects. First, the main feature is promises of high returns. If you are guaranteed a large interest per annum, then, most likely, you are facing a financial pyramid. The presence of an affiliate program can also confirm your guess. The offer to bring friends and get additional bonuses looks extremely suspicious. But this does not mean that deception is all around, you just need to be able to distinguish fraudulent projects from reliable offers.
Myth number 9. Investing is a way to make quick money
Some people think that investing allows you to make money quickly. The most famous investor, Warren Buffett, absolutely disagrees with this statement. He argues that investing is a long process. And you should not count on instant earnings. In theory, you can buy undervalued shares at a low price, the value of which will increase dramatically by several tens, or even hundreds of times. Such cases did happen. But this is rather an exception to the rule. Investments are always work for the future.