Jun 8, 2021 - Evelyn Chen
Investing isn't rocket science, although it may seem like it sometimes with the copious amount of information out there. Especially for beginner traders, this can be really overwhelming as they try to navigate the market. Of course, with all the articles and information out, this can lead to a lot of misconceptions about investing, or investment myths.
In this article, I'm going to debunk some of these common investment myths for you.
One of the biggest investment myths is that you should sell when the market is in trouble. After all, you want to try to minimize your losses as much as possible right? Wrong. Selling when the market crashes will almost always guarantee that you will encounter a loss.
Often times people panic during market crashes as they see that number in their account dropping. They then sell that stock to prevent them from what they perceive as losing more money.
However, when you sell, you lock in that loss. Stock prices fluctuate a lot based on a variety of factors, during times when the market is red it helps to do research on why the stock is crashing and see if there are any indicators that this is just temporary, and what factors are in play. The important thing is not to panic sell.
It's actually a really great opportunity to invest more into the market when the market is in trouble, think of it as purchasing stocks at a discounted price. With every downturn of the market, it is usually followed by an upturn. If you don't need money in the short term, it's worth holding onto your stocks when it dips, and even purchasing more in order to ride the curve when it goes back up.
This is often a limiting belief that prevents people from taking the first step into investing. They often think that they need a lot of money in order to invest.
While it is true that the more money you have to invest, the higher your growth potential, that doesn't mean you're not able to invest with small amounts of money.
There are a plethora of stocks and options you can purchase that is well under $100 or even $10.
Investments take time to growth, but the sooner you start, the sooner you can see results. Don't assume that it's not worth investing if you only have $100. With time all investments no matter how small have the potential to grow!
The buy and hold strategy relies on purchasing a stock and then holding onto it and hoping it increases in value. It is a passive approach to investing that ignores market technical analysis and market fluctuations.
With this strategy, it might perform well in bullish markets where stock prices are consistently rising. However, in general with the stock market there are long periods where a stock price will stay relatively constant and you won't experience much gains.
Instead, it is a better strategy to know why you are purchasing a stock, what price you want to buy in on that is worth it for you, and an idea of when to sell it. This way, you can look more at both the technical and fundamental analysis of a stock and maximize your potential gains.
A lot of people who don't understand the stock market view it as gambling. You're putting money into something that you are not sure will pay off. However, gambling is a game of chance, you're taking an uncalculated risk by making a random call.
With investments and stocks, you have more information to help you decide whether or you want to purchase a stock and invest your money. You're able to access information about the situation of the market, as well as news and sentiment.
Gambling is an instant, snap of the finger occurrence, you either win or lose. With stocks, it can be as long or short term as you want it to be, and is a lot more strategic.
There are no sure things in investing, everything depends on how the company is performing in relation to the rest of the market and time.
Companies that performed well in the past might not be doing well now. As time progresses and more innovation occurs, new and exciting ventures are popping up all the time. Companies need to keep up with the changes in order to stay on top of their game.
There might also things that come up throughout the year that is unpredictable that can affect the stock market drastically, like a global pandemic or a Reddit fueled stock pump. Nothing is guaranteed or predictable.
To sum everything off
There is a plethora of resources you can tap into on the internet to learn about the stock market, but there are also a lot of myths that tend to circulating about investing. The best way to counter these investment myths is to learn more about the market and financial education. Do your research and don't let these myths stop you from building your portfolio and diving into the stock market.