Investing in the stock market is a very dangerous game, if you don’t know what you’re doing. There are many lies and unreal facts that are going around in the market and media. Moreover, even banks and financing companies are spreading bad investment advice through their marketing, and people are biting into it because they don’t know any better. So that’s why I will go through the 5 myths of investing, and how to avoid them and invest in smarter ways.
Myth 1, Day trading…
Some people might think that day trading is a form for investing, and that it gives a good return on your money, it doesn’t. Day trading is rather a form for gambling because it is almost impossible to predict where the market will go on a day-to-day basis, and over 95% of day traders lose money in the long run. And that 5% that are gaining a decent percentage on day trading are people who have extremely high-quality trading tools, and are located or work inside a huge firm, or financial institutions. And most of all, they have millions of dollars to invest and lose.
Even if you are lucky an get a decent return on your first trades, you will most likely lose your money in the end, because you are putting your money in a basket that is almost completely based on luck. If you are a day trader, you might as well go to the nearest casino and spend all your money on the slot machines.
Now, I am going to admit that there are some geniuses who can defy the odds on day trading and end up earning big bucks, but those people are unicorns, they almost don’t exist. But for 99,9% of investors, day trading simply is not going to be profitable. Therefore, I advise every investor to give up day trading, and rather find their own form for investing which fits them best, which usually is long-term investing. (If you want more knowledge on why day trading is bad for most investors, then check out this article.)
Myth 2, Mutual funds…
This might be a controversial one, but true. People have thought for years that mutual funds are great investments, when its quite the opposite. First of all, mutual funds usually have insane high fees and costs that eat of your returns. And secondly, mutual funds 90% of the time don’t live up to their expectations and marketing. Let me explain, mutual funds try to beat the market and rarely succeed, they market a good percentage of returns which you won’t get because of A. the returns they market are past performances, B. the fees they charge you will easily cut that return in half or more, and C. you are not the one choosing where your money go, it’s the mutual fund manager, and the people who decide where to put your money are predicting where the market will go rather than investing with the market.
So, you would be much wiser to go with a low-cost index-fund or ETF, because with index-funds and ETF’s that track the major markets, you will invest according to the market, in other words you will flow with the market rather than timing it.
When you chose your index-funds and ETF’s, make sure that they have low cost. And chose those who track the major market indexes, it will probably give you bigger and better returns.
Myth 3, Investing will make you rich...
Investing won’t make you rich, it will make you wealthy. What I mean by this is that if you don’t have a great enough amount of money to invest then you will most likely not become rich of investing. But if you have a decent amount of money to invest with every month/quarter/year, then you can build true wealth.
When it comes to getting rich, it happens through your career/profession. Easily said, you become rich from your career, but you become wealthy from investing the money you make from that career. So, if you haven’t set yourself up to make a decent amount of money then, you have to take care of your income long before you invest.
Myth 4, You have to know when to buy…
If you are a long-term investor, first of all you chose the right kind of investing, but also you don’t have to know when to buy. The only thing long term investors need to know is when to sell.
The reason why you don’t have to know when to buy is because, when you invest in stocks or whatever as a long-term investor you don’t buy the stocks, you buy the business.
“But if I don’t know when to buy, how do I know if I should invest in the business?”. Glad you asked, you invest in the business if you believe in the company, they have great management, good structure, good financial statements, Innovation, stability and so on. Easily said, you invest when you have done your research and found out that the business is a good investment. The only time you should look at the stock price of the business is when you check its valuation and what the company is worth, almost every other time the stock price has almost nothing to say. The main massage is, look at the business not the stock price. And knowing when to sell is more important for long-term investors than knowing when to buy.
Myth 5, it’s too risky…
Your investments are only as risky as you make them, and in the other end your investments are also as secure as you make them. Yes, there are some risks you must take when investing. But, when researching a business, you may well detect all the risks and potential upside of investing into the company. Your investments are only as risky as you make them, this means that if you do your research and analysis of the business and you do it right, you will most of the times be able to detect the threats and risks as well as the opportunities and the possible returns. You can’t predict the market, no one can, but you can know the business and fully understand whats going on. Meaning that you can tell if a business is a great investment or not by doing your research and due dilligence on the business itself. In other words, DO YOUR REASERCH ON EVERY INVESTMENT YOU MAKE!
Thank you for reading.