Did you know that 6 out of 10 adults admit that investing is confusing, and they are often surrounded by misconceptions when it comes to choosing an investment product? Most of them want to create long-term wealth but desist from investing and consider it a daunting endeavour.

In this blog, we will explore 10 common myths of investing and separate fact from fiction to help you make informed investment decisions.

You need a lot of money to start investing 

There is no right time or right amount of money when it comes to investing. Investing regularly over time, even in small amounts can add up and compound to create significant wealth in the future. Remember, it’s never too early or too late to start investing, regardless of the amount of money you have.

Keeping money in a bank is the best way to grow wealth

Bank accounts, such as savings and fixed accounts typically offer very low interest rates that struggle to beat the country’s prevailing inflation rate. So, your net return on investment earned by parking money in a bank account is almost negligible. Additionally, if a bank in India fails, a customer can get a guaranteed insured amount only up to Rs 5,00,000, even if the deposit amount is Rs 50,00,000.

While it is safer to keep some money in the bank for short-term needs or as emergency funds, keeping money in the bank for long-term wealth creation is not a good investment strategy.

There should be a reason to invest

While it is true that investing should be done with a purpose in mind, it is still rewarding to consistently invest without tying the process to a reason. In the long run, a portfolio benefitted from compounding can be diverted for achieving life goals or can be utilized in case of emergencies.

However, it is a good strategy to do an annual check-up to reassess your risk appetite, rebalance your portfolio, diversify your investments, and seek expert advice if and where needed.

Invest in big and famous companies

Investing in big and famous companies is not necessarily a foolproof investment strategy. Good reputation of a company does not always guarantee good returns or the safety of capital. Large organizations may be less agile giving slower growth, leading to missed opportunities.

Thus, it is necessary to diversify across companies considering financial health, growth potential, management, and industry trends while ensuring that these investments align with the risk appetite and expected returns of the investor’s portfolio.

Saving is equal to investing

Saving refers to setting aside money, and investing refers to putting money into financial assets.

Saving is done to accumulate money. Investing is done to grow money.

While saving is important for meeting short-term financial needs, investing is essential for building long-term wealth. 

Having a balanced approach to personal finance that includes both saving and investing in a way that aligns with your financial goals and risk tolerance is the best way to maintain a healthy portfolio.

Only after a certain age, one should begin to invest 

Age doesn’t matter when it comes to investing. In investing, the earlier, the better! Investing early allows one to take more risks and reap the benefits of compounding.

Ideally, as soon as a person begins to earn money, a portion of their income should be allocated towards investments. Starting early gives the advantage of accumulating a good corpus for the future by truly realizing the benefits of compounding. 

Follow the influencers and financial gurus to invest

Yes, financial influencers on social media channels are telling you about new investment schemes, but how reliable are they?

Most recommendations by the financial influencers are dubious and self-benefitting for affiliate commissions etc. In the wake of pump-and-dump schemes, SEBI has recently issued a public notice advising the masses to refrain from unsolicited paid stock tips and recommendations on Telegram and YouTube, while taking measures to educate the investors.

Timing the market is the key to investment success

Timing the market refers to shifting the money between investments or withdrawing money from the market based on predictions or market assumptions. Timing the market strategy is extremely risky for an average investor without knowledge of the underlying fundamentals.

This strategy often leads to emotional decision-making, panic selling, and missed opportunities. Experts admit that consistent-correct prediction of the movement of the market has never been possible.

Investing is risky

Risk is inherent to investing. The degree of risk depends on various factors such as asset category, the underlying asset, investment structure, tenure, sector, and external factors.

• Investing in futures and options is riskier than investing in equities.
• Investing in equities is riskier than investing in debt securities.
• Investing in a single stock is riskier than investing in a diversified portfolio of stocks.

While investing does carry some level of risk, labelling investing as risky and refraining from it invalidates long-term wealth creation. Investors should also do their due diligence before investing, such as researching the company or fund they are considering and understanding the potential risks involved.

Diversification is good, so overdo it!

While diversification of the portfolio is recommended to distribute the risk across various asset classes and investment opportunities, ‘over-diversifying’ the capital results in diluted returns and increased transaction costs. The key is to find the right balance between diversification and concentration.

Diversification of a portfolio amongst liquid assets, equities, debt instruments, short-term and long-term investments, real estate, alternative fixed income instruments, gold, etc., should be done based on tenure, risk appetite, personal circumstances, and financial goals of an individual. Hence there is no one-fits-all rule for diversification.

With 10 common myths about investing shattered, you can start your journey to long-term wealth creation with greater confidence and clarity. Happy Investing!