If you search the Internet, you will find a plethora of information on business news sites, finance blogs, apps, and social media that are telling you what you need or how to invest. Investing helps you build wealth so that you can retire one day and live off the income. The problem is that it is hard to sift through all of the information. Take a look at some of the most common myths about investing.
First Myth: Investing in the Stock Market Is Gambling
There are many people who will tell you that investing in the stock market is no different from gambling. There are times when it is easy to invest because you are on a winning streak. Although there are some similarities to gambling, investing is a long term activity, and you benefit the most by sticking it out. When people gamble, there is a winner and a loser. With investing, you are building wealth over the long term, and there is no loser.
Second Myth: Timing Is Key
You never know what the market is going to do. It is difficult to time it because you need to know when to get out and when to get back in. Everything can change in the blink of an eye, so it is hard to time it perfectly. If you are investing, avoid reading the daily news cycle headlines.
Third Myth: More Stocks Make Your Portfolio More Diversified
Owning different stocks does diversify your portfolio somewhat, but stocks that are correlated tend to move with each other. Your portfolio is more diverse when you have different stocks that have no relationship to one another.
Fourth Myth: Percentage of Gains and Losses Are Equivalent
Another important term to understand is percentage gains and losses. This helps you calculate the rate of return. For example, if you were down 10% Monday, and you are up 10% today, you might think you are back where you started. However, you aren’t. If you have $100 and were down 10%, you would be down to $90. If you are back up 10% today, you are up $9 to $99. You might be close to where you started, but it isn’t equivalent.