Common Investing Myths (And What You Need to Know)

When it comes to investing, myths and misconceptions get repeated until the concept of investing starts to distort into something it isn't. Investing can be a healthy component in many families' financial picture, if you plan responsibly. Once you debunk the biggest myths, you might find that it's simpler and more achievable than you thought.

Myth: Investing Is Risky, Whereas Banks Are Safe

With just about any investment, you have a chance of losing money as well as gaining it. With a bank account, your money is generally FDIC insured and earns interest. There's no wonder that a major myth about investing overstates the risk and leans to hard on the security of bank savings. There's no wonder that a major myth about investing overstates the risks and leans too hard on the security of bank savings. The reality is that while there's risk involved in investing, there are also a lot of ways to mitigate it. You can choose lower-risk investments, diversify your investments (so you're not dependent on the success of a single company's stock) and plan to ride through lows until the market recovers. Diversification does not ensure a profit or protect against a loss in declining markets. Meanwhile, although your bank savings are generally secure, they come with their own form of risk, too. Bank account interest isn't usually high enough to keep up with inflation. Even though your bank balance may go up, the purchasing power of your money may start to slip over time. Just because investments carry some inherent risk doesn't mean that investing is an irresponsibly risky way to manage your money. Investing can even be a wiser long-term strategy than bank savings for some families, especially when it comes to significant goals like retirement or college savings, because it allows you to take advantage of the potential rewards of market growth.

Myth: Investing Is for Rich People

Starting to invest may be easier and more accessible now than ever before. First, the ease: Our phones double as powerful computers (shoutout to the people reading this on mobile right now!). Many investing platforms have apps that allow you to move money around from your mobile device.

Next the accessibility: Some mutual funds still require thousands of dollars as a minimum investment, but others let you get started with low or no minimum investment. Keep in mind that investing doesn't have to mean pouring thousands of dollars into individual stocks and constantly trading. Your ideal investing plan might entail contributing regularly to a 401 (k), college plan, and/or a mutual fund or exchange traded fund (ETF) in a taxable brokerage account. Remember that small contributions can add up over time.

Myth: You Need to Time the Market

Market highs and lows can both feel like intimidating times to jump into investing. You might worry that a high market will crash just after you buy your shares, or that a low market will drop further. Generally speaking, you don't need to worry about choosing the exact right moment to start investing, especially if you plan to keep your investments for a long time. Length of time often matters more than timing when it comes to investing. Research from Charles Schwab on a hypothetical set of investors showed that investing consistently was almost as good as having perfect market timing. Even the hypothetical investor who picked the worst trading day each year to invest money outperformed the person who kept all his money in cash investments.

Myth: It's Always a Good Time to Start Investing

Market timing may not have a major impact on when you start investing, but that doesn't mean that any time is right for you personally. Investing is part of long-term financial planning, and you may have short-term needs that need to take priority. If your bank account makes you bite your nails at the end of the month, you may not have money to spare for an investment you won't touch for 20 or 30 years. You might have credit card debt that's racking up interest and fees. With credit card interest rates averaging over 20%, your most lucrative "investment" might be paying off debt rather than concentrating on stock market gains. While it's a good idea to consider investing early, you want to do so in a way that's financially responsible in light of your whole financial picture.

Myth: You Should Focus on Savings First

This one is tricky because sometimes it can be true. If you have no savings at all, many financial advisors will recommend focusing on a rainy day fund before launching into an investment strategy. But as a parent, you're probably familiar with multitasking. Who among us hasn't started a load \of laundry, cooked a meal and typed a work email one-handed on our phone at the same time? Progress on financial goals can sometimes happen at the same time, too. Depending on your circumstances, you might have a plan that includes paying off debt, saving in a bank account and investing in a retirement fund at the same time. As your financial bandwidth allows, you might try other investing avenues, as well.

Myth: You Need a Complex Investment Strategy

Some investors love to dig deep into all kinds of complicated market analysis and strategy. But most of us put way more strategic thought and planning into juggling summer camp schedules or planning holiday gifts-and that's totally OK. If you open an account for your child's future, like a Uniform Gifts to Minors Act (UGMA) account or a 529 plan, you may encounter simple investment options like "aggressive" or "conservative." "Buy and hold" is a whole investment strategy based on, essentially, doing nothing. You can make investing as detailed and complex as you want, but many families do just fine by sticking with the simplest practices. Again, consistent action and years in the market can make a much more powerful impact than a complicated strategy. Investing can involve detailed strategy and large amounts of cash-or small, steady action over time. Don't let common misconceptions turn investing into some mythic monster. You can do a lot to fit investing around your needs and take it at your own pace. You may soon see how your investments fit into your overall financial plans to take care of your family. Content within is not intended as an offer or solicitation to purchase or sell any specific security. Not to be construed as investment advice. Investments in securities involve the risk of loss.

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