Four Stock Market Investing Misconceptions

May 16, 2018
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When you are new to investing, it’s natural to want to learn everything that you can. However, it’s possible that some of the information you read or hear is actually bad advice. Some misconceptions can discourage new investors. If you want to make better decisions, then you’ll need to know about the myths of investing and why they shouldn’t influence your activities on the market.

Here are four of the most common, with clarification for any new investor.

1: You Need to Be Wealthy to Invest in Stocks 

The stock market is sometimes seen as something for the rich and the privileged. This is simply not true. Whether you’re a young investor or someone who is looking for ways to prepare for retirement, the stock market is a valuable wealth building tool. You don’t need a lot of money to start investing, and online brokerage firms can offer real-time trading or purchasing of long-term stocks with reasonable fees.

 

2: You Need to Trade Stocks Quickly to Make Money

There are two main types of investment in the stock market. The first is trading, which means buying and selling stocks almost constantly as the market fluctuates. The goal of this activity is to make short-term returns. The second method of investment is long term, where you hold stocks for an extended period and take profits from dividend payments.

Both have advantages and disadvantages, and neither is inherently superior to the other. You can make a lot of money and even a stable retirement income from holding proven growth stocks that have a history of high dividend yields. You don’t need to trade stocks constantly or spend all of your free time watching the market to make money, so don’t listen to advisors that tell you otherwise.

 

3: The Stock Market is the Same as Gambling with your Money

Here’s another misconception and one that can dissuade potential investors. Many compare the stock market to gambling because of its inherent financial risk. Sure, you buy stocks that are heavily tied to speculation and chance, but there’s actually much more to it.

With gambling, the odds are stacked in favor of the house or the bookie. You can make money from gambling but you’re never going to be the biggest winner. With stock market investments, you make decisions based on a mountain of available data. There are strict regulations that control the market, and public companies are heavily committed to generating returns for their shareholders. After all, stock brings capital, and without strong shareholder support, many companies would be worse off. Even when there are recessions, long-term investors still make gains as the market recovers.

 

4: Analyst Predictions are the Final Word in Stock Market Investing

It’s important to stay up to date with stock market news and analyst predictions. It’s also important to make your own investment decisions based on research. Analysts don’t have all of the answers, and they are wrong almost as often as they are right. Sometimes they’re wrong in a good way, such as undervaluing a stock that then makes huge gains in the following days or weeks. Recently, Apple (NASDAQ: AAPL) surprised analysts by releasing better than expected financial results and making a huge dividend payment to investors.

There’s always going to be risk in your investments, so don’t rely on the analysts to dictate your stock picks. Instead, take the time to research the market sectors and businesses that interest you, learn the history of stocks, look at other factors like political climate and the general economy, and then make your buy or sell decisions.

 

Myths of the stock market can hold you back from your potential. With a diversified portfolio, you can make real returns that help with future purchases, retirement, and wealth building. When looking at average numbers the stock market has made returns of roughly 7% each year since 1950. As a form of either short-term or long-term investment, there are few better options available today.

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