There are lots of misconceptions about investing. We bust half-a-dozen of the most common myths.
The world of investing can seem a daunting place but putting your money to work in the stock market is a simple process, and there are plenty of misconceptions.
If you want to grow your wealth over the long term it is important to get to grips with the basics, so you can make an informed decision.
Here are six of the most common myths surrounding investing – busted!
Myth 1: Investing is too risky
Tales of stock market crashes may give you the impression that investing is the path to financial losses. But it is important to note that investing is not gambling. While investing comes with some risk, statistics show that, given enough time, you will make more money by investing in the stock market than saving in cash.
As Peter Lynch, investment guru, said: “The key to making money in stocks is not to get scared out of them.”
And you can choose where you invest, tailoring how much risk you take to your personal preferences, timeframe and goals. For example, there are plenty of quick-start investment options covering a range of risk profiles, with simple guidance to pick the right one for you.
- Low-cost investments to help get you started – all chosen by our experts
- With two decades to go to retirement: increase risk or play it safe?
- Mind & Money: understanding ourselves and our attitudes to risk
Myth 2: Investing is only for the wealthy
You don’t need stacks of cash to start investing. You can start small, and ‘drip-feed’ from as little as £25 a month into an investment account. It’s easy to set up a direct debit, so you won’t necessarily even notice that you’re investing this money.
Plus, investing small sums on a regular basis can potentially help to smooth the ups and downs of the market. Put simply, you buy more shares when their price is low, and fewer when their price is high, which may even out performance over the long term.
Of course, how much you invest depends on your financial situation, and ultimate goals. You can, of course, invest a lump sum in the market, but make sure you’re happy with the risks involved first.
- What is regular investing?
- Why you should invest regularly rather than all at once
- Find out more about regular investing here
Myth 3: You have to lock your money away
Ideally, you need a timeframe of five or more years if you’re investing in the stock market, to give your investments time to ride out the highs and lows. For emergencies, it’s wise to have some cash savings you can access easily over the short-term.
But you’re not locking your money away, as you can also still access any money or assets in your investment account. However, it is important to bear in mind that there’s the chance you might not get back the original amount you invested. You’ll face losses if you’re forced to sell during a market dip, as your investments won’t have time to recover their value.
Myth 4: You need to keep checking your investments
On the contrary, watching your investments like a hawk can be detrimental to your wealth. Investing requires patience, and the ability not to panic if markets take a short-term tumble, but it can be harder to keep a cool head if you’re constantly monitoring market movements.
Even if you’re an avid investor in individual companies via shares, you don’t need to check your investments daily. You can use handy tools to tell you when a share price reaches a particular level as part of your trading account.
However, you probably want to check how your investments are doing at least once or twice a year, to see if you’re on track to meet your goals.
Myth 5: You have to know when to buy and sell
You don’t have to buy and sell shares at the ideal time to make a profit. The majority of investor returns come from holding a range of investments for the long-term.
Besides, in reality, there are masses of factors that can influence stock market performance, and no-one can know for certain where the market will move next. The most important thing is to get started, and invest for as long as you can.
Myth 6: Investing is a quick route to riches
Investing isn’t a get-rich-quick scheme, but there are always investments that can seem like an easy win. For example, bitcoin’s ascendency has prompted plenty of investor interest over recent years, but its price is volatile, and has come crashing down in the past. Similarly, shares in smaller companies, like those listed on the AIM market, might have a greater chance of growing much more than already established businesses. However, for potentially high rewards, investors must take extra significant risk.
Growing awareness of the potential of investing is a good thing, but it is important to focus on your long-term goals when starting out. For example, this may be money that will ultimately provide for your retirement, or your children’s futures. This way you can protect your future self through sensible investing, and build your wealth gradually over time.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.