Six investment myths/mistakes you should ignore

Market


As a new investor, when you ask about the good market strategies, the experts may give you several ‘truisms’, which may not actually be true. So, you should be quite careful as you begin your investment journey. In fact, what perhaps you believed to be the key tenets of investment may turn out to be investment myths.

Let us shed light on the six investment myths that you must ignore:

1. Waiting for the market to fall before investing: It is often believed that investors should buy the stocks at the right time when they are trading lower. Although this is an ideal thing to do, sadly no one knows the right time. So, if the stock you want to buy is available at the right price, you may buy it. If you wait too long, you may not get it even at the current price.

2. You must have a significant amount of money: There is a myth that you need a certain minimum amount of money to be able to invest. Even if something as small as 500 a month, you can start your investment in mutual funds.

3. Need to invest time to be an investor: This is far from true. There are two ways to be an investor: active and passive. If you want to actively invest by understanding different investment options and after learning about their risks, then you need to invest time.

On the other hand, you can passively invest by putting money in some index fund, aligning your investment goal to that of the constituent stocks of the index. For this, you don’t need to invest time in trading.

4. Must buy a security if it is available at a good price: Just because some stock is available at a good price, you should not buy it. You should buy a security only if you think it will grow — either it is a growth stock or a value stock. On the other hand, when a company has weak fundamentals, its stock may not have a strong potential to grow in future. So, regardless of the price at which it is sold, it may not be a good pick.

5. Beating the market is unfeasible: It is often argued by financial experts and economists that the market corrects itself and the economic growth is truly reflected in the market index. So, there is a belief that it is not possible to post gains higher than that of the market index. It is certainly not true.

There are several funds that post returns higher than the index and moreover, your choice of stocks will not necessarily be the same stocks that comprise the index — at least not in the same proportion. So, your portfolio will follow a different trajectory.

6. Past performance is a true indicator of future growth: Most fund houses try to woo the investors by showcasing the past performances of the funds they manage. But what happened in the past may not repeat in future. In other words, if a fund consistently posted 10% return in the past five years, it does not mean that it would demonstrate the same performance the next year as well.

So, we can highlight that early investors must exercise caution and be careful about where, and how much, they invest. And regardless of what they decide to do, they ought not follow any arbitrary and irrational advice. To start with, they should not believe in these myths.

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