The Biggest Stock Market Myths and How They Are Holding You Back
Ask anyone who’s achieved any level of wealth how they made their fortune, and there’s a good chance they will tell you that it was more than hard work and saving money. Most wealthy people found ways to have their money make more money for them, and in many cases, this meant investing in stocks, bonds, precious metals or other products.
While many people make significant amounts of money in the stock market every year, even more people resist investing, often out of fear that investing in stocks is likelier to lead to financial ruin than financial freedom. That’s simply not true — as are many of the other myths that prevent people from investing.
Consider whether any of these following myths are keeping you from effectively leveraging your current assets.
Myth #1: Investing in Stocks Is Like Gambling
While it’s true you can lose money in the stock market, it’s actually quite different from gambling. When you play a game of chance, like roulette, you have a chance to either win or lose. You win, you get your money back, and then some. You lose, and your money is gone forever. When you invest in the stock market, on the other hand, there’s very little chance you will come up empty-handed. When you buy stock, you are buying a piece — however small — of a company. The stock value is based on the company’s profits, which fluctuate — when profits are down, the stock price goes down and vice versa. Part of playing the stock market game is understanding these fluctuations and knowing when to buy and when to sell so that you avoid losing money and make positive gains. There’s little luck involved; you just need to watch the market and pay attention to your stock values.
Myth #2: What Goes Down Must Come Back Up
Some amateur investors track particular stocks as they decline in value, waiting to purchase until the stock reaches its lowest point. They assume that because a stock was once valuable, it automatically will be valuable again. They attribute the drop in price to other factors, assuming those factors will level off and the value will skyrocket again. It’s not that such a scenario hasn’t happened, but it’s rare. Experienced investors will tell you that choosing the right stocks has more to do with understanding individual corporations and market factors than price alone. It may be fun to experiment with a few hundred dollars’ worth of low-valued stocks to see how things turn out, but attaining true wealth requires shrewder investments.
Myth #3: Only the Rich Can Succeed in the Market
While it’s certainly true you must have money to invest in the market, and the more you invest wisely the more money you will make, you don’t have to have millions to starting earning money in the market. Even investing a few thousand dollars at first and then increasing the amount over time can pay off significant dividends. In fact, taking a long-range view and steadily increasing your investments over time, and staying calm and focused on your goal even during downturns can pay huge dividends in the future.
Myth #4: Holding on to Stocks Is the Best Strategy
In the past, buying a particular stock and sitting on it forever was a good way to significantly increase the value of the stock. However, there are very few companies these days that are consistently showing growth and increased value, making it a generally foolish decision to “buy and hold” on to stock for many years. You must follow the market and the performance of your holdings closely, and yes, take some risks to unload lower-performing stocks in favor of those with greater growth potential.
Myth #5: Tax Increases Will Tank the Market
There is great concern these days over the potential impact a significant tax increase could have on the markets. Some argue that a bump in capital gains rates will have a devastating effect on the markets, but history has shown otherwise. The fact is, it’s nearly impossible to predict the impact tax increases will have on the stock market, and smart investors hedge their bets and place their money on those stocks that show the greatest potential for growth, no matter what the political climate.
Investing your money in the stock market may seem frightening if you don’t have all of the facts, but when you learn how it works and the truth behind some common misconceptions, it may not seem so scary after all. Seek help from a qualified advisor, and you too can be on your way to leveraging what you already have into much more.
About the Author: Matt Grant has a degree in finance and has worked in financial services for nearly a decade.
Category: Investing
