5 Common Stock Investing Misconceptions and the Truth Behind Them
Most people are afraid to invest on stocks because of a lot of common investing misconceptions. One reason could be their lack of knowledge and interest to try new things. Instead, they opt to stay on the traditional way of growing their money. Get to know investing well and wash off these five common investing misconceptions.
Misconception # 1
Avoid international investing because it’s risky; stay domestic instead.
Truth
The world economy keeps on expanding international business that is why investing some of your portfolio internationally is not risky. It was reported that 75%-80% of the stock investments in the US are average American investor holders despite of the country’s less than 50% global stock market capitalization. The most common international investments are mutual funds and retirement plans. You may consider these if you plan to invest internationally. It is good if you opt for long-term investments.
Misconception # 2
Investing in stocks is a form of gambling.
Truth
This misconception is a common stumbling block of many people trying to get out from their nutshell of poverty. Stock investing is different from gambling. If you invest in stocks, it means you share ownership with the company you invested in. Everytime the company generates income; you are entitled to claim on its assets and a fraction of its profits depending on how much you have invested in. However, the common waterloo of investors is to think of shares as trading vehicles, neglecting the idea that stocks represent ownership of the company. Gambling on the other hand is purely a zero-sum game. It means that the players gain must equal the losses of other players. It does not increase the economy’s wealth. It cannot make our lives worth living for.
Misconception # 3
Investing in the stock market is suited for brokers and rich people only.
Truth
Everyone with an open mind can become a stock market investor. All the knowledge-resource you need to start investing is available both in online and print such as books and magazines. You can search for reliable websites about the stock market and you can also look for financial advisors to keep you on track. It depends on how willing you are to take risk and on how much you trust these vehicles to your desired destination of good future.
Misconception # 4
Stocks with increasing value are expected to return to their even value.
Truth
The value of stocks depends on the performance of the company in the stock market. For example, the Berkshire Hathaway’s stock price increased from $7,455 to $17,250 per share in more than five years and over the years it rose to $170,000 per share. Hence, the law of physics cannot be applied in stock market. It would still depend on the excellent management of the company. Therefore, choose the stable and best performing companies in the country and in the world to ensure that your share of stocks is in safe hands.
Misconception # 5
More complex investment strategy is better to beat the market.
Truth
It is important to understand the world of investment. Little knowledge is dangerous. Hence, the semi-passive approach is proven to be the best strategy by experts for years. It means that you combine your buying with some timing. You buy when the stock price is beneath your “Buy Below Price” and you sell when the price is near your “Target Price.”
Photo Attribution:
Featured and 1st image by RMajouji at fr.wikipedia [CC BY 1.0 (http://creativecommons.org/licenses/by/1.0)], from Wikimedia Commons
2nd image by Katrina.Tuliao [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons
