People assume you have to be rich to invest.
They think investing is too risky.
They believe theyre already investing because they own a home.
These common myths keep people frombuilding a basic portfolio.
And, if you ever plan on retiring, youll need that portfolio.
Dont let these myths get in your way.
But you dont needa lotof money.
Mutual fundsare a safe option for your portfolio.
A mutual fund is a pool of various investments.
Exchange-traded funds (ETFs) are similar investments.
(The main difference is how they trade; you canread more here).
Some of these funds require a minimum of $3,000 or even $10,000 to invest.
But there are plenty that require as little as $100 or $200,as weve pointed out.
Either way, dont let this myth get in your way.
Its worth mentioning that there are companies on the market that trade for less than ten bucks a share.
So no, you dont need a ton of cash to start investing.
But its also not smart to invest in a single company or asset.
Your investing portfolio (all of the the stuff youre invested in) should be diverse.
Meaning, you want to invest in a bunch of different companies, bonds, and other assets.
But investing in the broad market, over years, has pretty good odds.
Thats $260 a year or $5,200 after 20 years.
Will you hit the lottery?
Perhaps,
but your odds of winning are extremely low
.
The U.S. stock market on average returns about 8% a year.
Also, gambling simply works differently than investing does.
With gambling, the goal is for other people to lose money.
The winner only makes money if other people lose.
That being said, there is some risk in investing.
And some investments are riskier than others.
Technically, yes, the market could tank and all of your assets could completely drop in value.
And anyway, the alternative isnt any better.
In fact, its worse.
Considering inflation,notinvesting may actually be riskier.
Myth: you might Beat the Market
Investing isnt as unpredictable as gambling.
Its also not so predictable that you could time the market and beat it for huge returns.
Over time, you should earn an average market return.
Vanguard publishedone such study.
They compared a buy-and-hold investment strategy with a performance-chasing strategy.
While investing isnt quite as unpredictable as gambling, its also not so predictable that you could time it.
As the old saying goes, its about your time in the market, not timing the market.
Gold and precious metals are usually sold as the go-to safe investment.
Bankratefurther explains:
Any hint of bad news brings out the gold bugs.
One can barely listen to a news or talk radio station without hearing commercials for investing in gold.
In reality, theres nothing wrong with investing in gold or other alternatives.
But one non-Doomsday argument for investing in gold is that its a hedge against inflation.
Rothweighs in on this topicin a post for his site, Get Rich Slowly.
He points out that gold enthusiasts argue that as prices rise, gold tends to retain its value.
Roth counter-argues:
Thats true but long term, thats all that it does.
There are other things that tend to keep their value during inflation, if thats what you want.
Real estate, for one.
And TIPS (treasury inflation protected securities, a jot down of bond).
And maybe even
savings accounts
If youre wanting to fight inflation, there are better options.
Since 1926:
Gold has a real return (meaning: after-inflation return) of about 1%.
By my calculations (not Siegels), real estate also has a real return of about 1%.
Bonds have returned about 5%, or about 2.4% after inflation.
This isnt to say that gold is a terrible investment.
But a proper portfolio isnt invested in any single asset.
And if gold is your only asset, your portfolio wont earn much.
Over at the Atlantic, financial advisor David Marotta recommends keepingless than 3% of your portfolio in gold.
Myth: My Home is an Investment
People often consider themselves investors because they own a home.
People tend to assume homes are appreciating assets, but this isnt always true.
Yale economist and Nobel prize winner Robert Shiller actuallycrunched the numbersand started the debate on this topic.
He points out that, overall, the housing market barely outpaces inflation.
Its not the most exciting option, but then again, a solid investment portfolioisntexciting.
Its boring, balanced, and steady.
In reality, all it takes is picking a few funds and letting them grow over time.
When you shed the myth from fact, investing is actually pretty simple.
Illustration by Tara Jacoby.
