5 investing myths to stop believing

If you’ve heard about the wonder of compound interest, you’ll know you could be building wealth for your future self by investing. However, it can be easy to fall into analysis paralysis and fail to take action. Particularly if you’ve got any of these common investing beliefs below running on repeat in your head. You can also check out our Director Josh Lee's tips for investing in 2024 above.

1.“It’s too risky. It’s basically gambling.”

If you’re picking shares, day trading and getting your tips from extended family members convinced this is the “next big one” – then yes, investing is pretty much gambling. You might be doing some basic research but you’re mostly pinning your hopes on a risky investment, in the chance it may pay-off.

The reality is all investments carry risk – some are higher risk than others. However, unlike gambling, successful investors understand their risk tolerance and make aligned investment choices. They don’t put all their eggs in one basket (diversification), and they understand the need for patience and time in the market.

So before you consider investing, make sure you understand your goals, your risk tolerance, and your timeframe. 

2.“You need to have a lot of money to start.”

Traditionally you may have needed at least $500 to buy shares, however with the rise in app-based trading platforms, this is no longer the case. You can now get started with as little as $5 and some apps even offer round-up features so you can invest with your (digital) spare change.

This accessibility has resulted in an increase in 18–24-year-old “next-gen” investors who now make up 9% of the 10.2 million Aussies investing outside real estate or super. Of those investors, 63% only began investing in the last two years*.

3.“I can do it later. I have plenty of time.”

Sure, you could start later, but the power of compounding is what helps you to build wealth in the long term. You can take advantage of compound interest by reinvesting your dividend and distribution payments, alongside your regular contributions. The longer you do this, the more you’ll potentially earn. You can find a compound interest calculator on the Money Smart website that demonstrates how compounding could work for your investing strategy.

4.“You need to time the market.”

Buy low, sell high is a common refrain. Unfortunately, the share market is notoriously difficult to predict so trying to time the market may not be feasible. Instead, you should aim to start investing as soon as you can for as long as you can. There’ll no doubt be dips during your investing journey but you’re not actually losing any money unless you sell during a downturn. Selling crystallises your losses. This is why it can often be good to automate your investing. Once you’ve got your strategy sorted it may be worth just setting and forgetting.

5. “You can get rich quick.”

Unless you really want to risk it to get the biscuit — gambling style — the focus should be on getting rich slow. Cryptocurrency in the last five years is a great example of an investment with the potential for both big returns and big losses. Egged on by influencers on social media, many people invested significant money into cryptocurrency thinking they could make a quick buck. It’s now tanked, and they’re left unsure if they’ll get that money back.


If you’re feeling unsure about how to go about investing, consider working with a financial adviser. We can help you to understand your risk tolerance and develop an investment strategy to meet your goals.


General advice disclaimer: The information contained within this post is general in nature and does not take into account your personal circumstances. Please reach out if you wish to discuss your personal situation.


Sources:
2023 ASX Australian Investor Study