One of the aims of this column, and of the Smart Money Management radio show, is to take the mystery out of investing and financial planning. Today, however, we are going to talk about myths that are widely regarded as truth. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.”
- It’s Hard to Get Started If you’ve never invested before, it can seem intimidating — and you may not even know where to begin. But the reality is that it’s never been easier to get started with investing. It’s simple to open a brokerage account or Individual Retirement Account (IRA) online, and there’s a wealth of information available to investors for free on the web.
- You Need a Lot of Money to Make a Lot of Money There were days when stock brokers wouldn’t even take your calls unless you were willing to invest thousands of dollars. Nowadays, it’s possible to open a brokerage account and invest just a share at a time. Granted, transaction fees can make it worthwhile to invest larger sums, and some investment accounts have minimum requirements — but you generally don’t need to be rich to get started. A modest amount of cash set aside at regular intervals can result in a big nest egg upon retirement.
- It’s Overly Risky Investing is not without risk, but you can be in control of how much risk you want to assume. All investments carry some degree of risk, but you can employ strategies that may help to mitigate the risk. It’s important to make sure that your investment mix matches up with your personal goals and risk tolerance.
- The System Is Rigged You will often hear this from critics of our financial system. I won’t suggest that our system is perfect, but to call something “rigged” is to suggest that the average person can’t succeed. Average people are often successful in investing and saving money. From our experience, discipline is one important key to success.
- Past Performance Indicates Future Returns It’s tempting to buy an investment because it has done well in the past. There’s absolutely nothing to prevent an investment from tanking even after years of great returns. And it certainly doesn’t make sense to invest in something based on the performance of the previous few months.
- Investment Professionals Know a Lot More Than You The truth is that some do and some don’t, but it’s easy to confuse luck with skill, especially in a rising market. Throughout my career I have seen analysts lauded as geniuses because of one prediction that came true. It’s much harder to be right time after time. Instead, save and invest consistently and with discipline according to your plan.
- You Should Try to Get Stocks During an IPO Initial public offerings get a lot of headlines, and it may seem desirable to get in at the ground floor. Examples abound, however, of companies that failed to come out of the gate strong. In any case, many investors succeed in reaching their goals without ever having invested in an IPO.
- You Need to Have [Insert Investment Here] in Your Portfolio You may get advice from people telling you that you need a specific type of investment to optimize your returns. But there is rarely a single investment that should be considered a must-have. There are a million ways to build a collection of investments that will help you pursue your goals.
- $1 Million Is a Magic Number Thanks to inflation and longer life expectancies, a million bucks may not be enough to retire comfortably. It may be more than enough. There is no universal magic number. The amount you need will depend on your own goals and lifestyle.
To hear the podcast of the Smart Money Management radio show on this topic, or others, go to our website at alderferbergen.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. Past performance is no guarantee of future results. Asset allocation does not ensure a profit or protect against loss.
Securities and financial planning offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC