Myth 1 – There is a Minimum Amount of Money Required to Start Investing
There are multiple ways to invest and there's no minimum amount of money to start. Anyone can open an E*TRADE brokerage account for free. You can start with a small amount and invest monthly. Look at it as a way of paying yourself first.
By investing monthly, you get a compound effect. The central theme for compounding is time. The more time there is, the more the returns. You earn a percentage gain not just on your principal amount, but your interest also earns a percentage gain. Let's say, for instance, a 25-year-old man puts $2,000 savings in an investment account for one year at a 7% annual rate of return. In the first year, he will earn $140, giving him a new balance of $2,140. In the second year, the annual rate of return will be calculated at $2,140, earning $2,289.80. If he doesn't add to his initial investment of $2,000 for the next 40 years, by age 65 his savings will have compounded to $29,948.92.
There is also concern about the cost of opening an investment account. It's important to note that there are individual brokerage accounts that offer a $0 commission to trade such as Vanguard and Ameritrade. This is an account you can use to buy and sell securities like stocks, bonds, and mutual funds. Even if you are required to pay a fee, it is not very high. Another way to invest is through a retirement account such as a Roth IRA or Traditional Retirement accounts. The biggest advantage to these retirement investments is you can save on a wide range of investments and enjoy some tax benefits.
Myth 2 – You Need a Lot of Time to Start
Time should not be a limitation when you're starting to invest. Whether you are starting your investment journey in your 20s, 30s, 40s, or 50s, you still have a chance. Let's take the example of Mike who is a 55-year-old hotel manager. Assuming Mike is at a point in his career where he earns enough to set aside $5,000 every month in an investment account, earning a 7% annual rate of return for the next 10 years. When he reaches 65 years, he will receive $865,094.41.
In addition, you don't have to spend 100 hours researching to get started. There are multiple resources to educate you more on different investment strategies. You can choose active investing, which involves buying and selling assets frequently to make profits. There is passive investing where, instead of selling often, you hold onto the assets and wait for long-term gains. Both types of investing have their pros and cons, which depend on the goals of the investor. You can decide to be a long-term investor, a short-term investor, someone that invests in mutual funds or individual companies by buying stocks according to your risk profile and financial objectives. There's a style of investing for everyone.
If you are time-constrained, you can get guidance from a financial advisor through a service like Brown Investors Wealth Management or use a subscription service that identifies stocks that are good buying opportunities, like Brown Investors. Leveraging a service helps you to "shortcut" the research and analysis part and provides more certainty around your decision. They will also be on the lookout for any risks and technical issues such as rates and fees.
Myth 3 – You Have to Come from a Wealthy Family or a Certain Financial Background to Invest
Many people may invest because they have parents who did, but it doesn't have to be that way. Investing is about your mindset. A positive mindset will see opportunities, while a negative mindset will see impossibilities. While the environment shapes people's view of money, no one is limited in gaining financial intelligence with the endless opportunities and resources available.
Investing is open to everyone, particularly for black and brown people. This is in the face of the outstanding wealth gap among racial groups in the USA. According to a 2019 survey by the Federal Reserve, there was a comparison of the median wealth of white families at $188,200, with black families at $24,100 and Latin families at $36,100. This exposes a deep gulf in America's social class. However, this resonates with the key mission of Brown Investors' commitment to growing generational wealth through stock market education. The Brown Investors' focus is to bridge the knowledge gap and uplift its clients to play on the same level as guru investors in the market like Warren Buffett or Mohnish Pabrai.
If your capital is limited, choose a small amount to invest every month as mentioned earlier. You can invest as low as $50 for a diversified portfolio with ETFs. You can also work alongside an experienced expert such as Brown Investors to help you pick high-growth stocks, expand your knowledge, and grow a high-performing portfolio.
Myth 4 – There is Only One Way to Invest
Investing is not a one-size-fits-all. There are many different investment types to choose from; individual stocks, cryptos, mutual funds, index funds, bonds, and real estate. Considering index funds, they are usually recommendedbecause they are low risk and perform well in the long term. Another option to consider is cryptocurrency, which has great profit potential but still needs more investor education. It is important to note that each asset class has its risks, benefits, and tax matters to consider. However, it is advisable to adopt a simple investment strategy while gradually building your portfolio.
You should also find an industry that interests you and become smart in that asset class. If you jump onto every "hot" stock in the market, you will soon spread yourself thin. As a conscious investor, you should be strategic about what you invest in. This will inspire you to learn more about what you're investing in to make smarter decisions.
Myth 5 – You Have to Trade Frequently to Make a Return
You do not have to buy and sell stocks every day to be successful. Day trading is very risky and requires experienced professionals who can make quick decisions due to market volatility. Reports show that only 10% of day traders are successful.
A buy-and-hold strategy is a solid strategy. This is one way to build a strong portfolio that will generate good returns in the long term. It is different from active investing, as an investor buys stocks or other securities and holds them for longer before selling. Warren Buffet is one of the biggest endorsers of the buy and hold investing. Overall, trading frequently opens you up to more mistakes. It is not for everyone.
Key Takeaway
The mantra for investing is to learn and study the what, why, and how of investing. There will always be myths and preconceived notions, making investing intimidating. However, it is best to start now with a small amount rather than not to invest at all. If you are still unsure what exactly to invest in, check out our stock pick membership, where we give you monthly stock picks that have a high chance for growth. Contact us for more information.