Five investing myths

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

Investing is one of those topics that conjures up all sorts of images in people’s heads. The trouble is they aren’t always that accurate. Ask a bunch of friends what an investor looks like, for example, and they might talk about red braces and a noisy trading floor, rather than a retiree having a cuppa while they sort out their pension.

Wild hot takes about investing aren’t unusual but it is worth dispelling the myths where we can. Here are some of the worst offenders with a bit of truth thrown in to set the record straight.

Reality: If your broker charges high commissions, transaction costs or account fees it probably does mean you need your investment gains to at least cover these charges, so starting with a higher amount makes sense. Thankfully, there are low commission brokers out there that don’t charge the earth to keep your account open or to make a trade.

That means you can feasibly start with much smaller amounts to suit your ability to invest. If your broker offers ‘fractional shares’ it also means you don’t have to save up for the most expensive shares out there. Instead, you can buy a slice of a share if that’s more in line with your budget.

With Robinhood, you can start building your portfolio with as little as $1 with fractional shares.

Read more: Do I need to get every stock pick right?

Reality: It’s tempting to see the inherent risk and volatility of the stock market and come to the conclusion that it’s all just luck if a share goes up or down.

A key element of the stock market is glaringly absent in that assessment though, namely that there are real companies producing revenues, profits and dividends underneath the charts on the screen.

These companies reinvesting profits with a view to making bigger profits next time, creating long-term value and raising the value of their shares isn’t about luck. Rather, it’s about consistently growing earnings in a way that investors can measure regularly.

The mystery of the market can start to fade when you analyse company strategies, how they’re performing and how impressed the market is with it all. There is still a large element of preparing for the unknown, as we can’t tell the future, but it doesn’t mean it’s a roll of the dice.

Reality: Is today the best time to invest? What about tomorrow? Or next week? Timing the market is pretty much impossible because we simply don’t know how share prices will react to news of all kinds from one day to the next. It’s why investing early and often, and letting time build up the snowball effect of compounding is often the best strategy.

While market timers sit on the side lines waiting for the perfect moment to pounce, long-term investors just let dividends and business growth compound in the knowledge that there will be ups and downs but history shows us it should yield positive results over the long haul.

Read more: When should I sell my stocks?

Reality: It’s not a bad thing to be concerned with risk. After all, deciding how much risk you’re willing to take in the pursuit of returns is a key element in deciding which assets are right for you. Add in how much you are able to invest and your time horizon and you’re well on your way to constructing a portfolio to help hit your personal financial goals.

The mistake is to think investing, at its core, is risky business. Different assets, like stocks and bonds, carry very different risk profiles and potential for returns - it’s how we combine them that decides our overall risk level. Holding a range of different assets in a blend of industries, geographies and company sizes (diversification) could help minimise losses and could offer exposure to more sources of growth from around the markets.

Reality: We’re seeing the barriers to investing by yourself consistently dismantled. The age of the internet means you can access company reports at the same time as professional investors. Placing a trade has never been cheaper or quicker and staying up to date with the market has never been easier.

It means there are fewer reasons than ever to automatically opt for a professional to run your money for you. If you do want to invest for yourself, schooling up on financial literacy, developing discipline and practising patience are the name of the game.

It doesn’t mean there isn’t a place for professional financial advice or fund management services. If you are facing a tricky tax situation or want to tap into a seasoned pro’s expertise, it may well be worth paying for. Just make sure you’re getting value for money if you do.

It’s not an ‘us and them’ situation though, and most people find they can take care of the bulk of their investing journey, only bringing in a professional when they don’t have the experience, skill or will to do it themselves. Just remember, it’s not a guarantee you’ll make better returns on your own or with a professional.

Important information

When you invest your capital is at risk. Past performance is not a reliable guide to future returns. Your investments and the income you receive from them may go down as well as up so you may get back less than you invest.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. We don't charge commission fees when you buy or sell stocks but other costs apply. See our fee schedule.