15 Outdated Investing Myths That Could Be Costing You Money

It’s all too common that long-held investing myths keep people from making the best money moves. Let’s look at some of these myths and how they could be costing you.
Updated April 3, 2023
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Outdated Investing Myths

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Investing money might help you grow your wealth, but it can be a scary concept for some. According to a recent FinanceBuzz survey on investing habits, nearly three in 10 Americans haven’t started investing yet.

There are many reasons that stop us from investing. Unfortunately, some of these reasons are actually old investing myths. But putting off investing may be one of the most significant money mistakes you can make.

To help more people start investing and making smart money moves, we’re going to present 15 investing myths, explain why they’re outdated and how they could be costing you money.

You need lots of money to get started

FinanceBuzz’s survey found 62% of people believe you should have $1,000 or more to open an investment account. A couple of decades ago, some mutual funds required a minimum initial investment of thousands of dollars.

But this widely believed myth that you need lots of money to start investing simply isn’t true. Today, investing apps have changed how we invest, and many traditional brokerage firms allow you to begin investing with very little money. You can even get started in investing with as little as $1 if you buy fractional shares.

A bank account is the best place for short-term investments

It’s a common belief that a bank account is the best place for your short-term investments. The money is usually insured up to at least $250,000 thanks to Federal Deposit Insurance Corp. insurance and at least won’t decrease in value.

Unfortunately, bank accounts typically have awful interest rates. If you want to get decent earnings on your money, other options exist. For instance, certificates of deposit and money market deposit accounts are also normally FDIC insured and may offer higher interest rates.

It's complicated

If you’ve ever tried to watch an investing show on TV, you’ll know that these strategists often talk about very detailed concepts and strategies in an attempt to eke out higher returns. Thankfully, everyday investors don’t need that level of complication in their investing lives.

Some of the best investing apps just have you fill out a questionnaire about your goals, risk tolerance, and other relevant financial information. Based on this, they suggest a portfolio of investments that fits your needs. They can even automate your investing in that portfolio so you can regularly and easily add more money.

Although you don’t want to blindly follow the advice of an investing app (or a human, for that matter), these services can take care of some of the more complicated work for you.

Stocks are the only option

It’s easy to think stocks are the only option to invest in. You constantly hear about the stock market reaching new all-time highs or dropping by a few percent in the media. The press doesn’t tend to cover other investments as much.

But stocks are only a tiny part of investing. You can invest in many other types of assets, including real estate, cryptocurrency, collectibles, artwork, precious metals, and more. For example, Masterworks helps you invest in fine artwork that you likely couldn’t otherwise afford to own.

It takes a lot of time

The traditional idea of investing makes it sound like it would take up a lot of your time. You have to research investments, read a company’s public financial reports, and keep track of the news that could impact stock prices. And you have to do that for everything you invest in, right?

Thankfully, the answer is no. You can earn decent returns throughout long periods in other ways. For example, you could easily diversify your assets just by investing in index funds.

Index funds often have diverse holdings, which means they spread out the risk over multiple companies rather than concentrating your risk in one or two. You won’t typically see as high a return as you might with an individual stock, but you also won’t have to spend as much time managing the investments and expose yourself to less risk of losing money too.

The fees are too expensive

Investing used to be expensive. You had to pay brokers to make stock trades for you and there were a lot of other potential fees as well. But things have changed over the past couple decades.

Now, there are investing apps that offer fee-free trades. And even some of the major investing powerhouses that have been around for decades have started offering commission-free trades.

If you want to invest in a more diversified investment, such as a mutual fund, some companies even offer no-fee investments. In particular, Fidelity offers four mutual funds that have 0% expense ratios and no minimum initial investment.

A 401(k) is all you need for retirement

If you work at a company that offers a 401(k) plan, it’s easy to think a 401(k) is the only account you’ll need for retirement. Although that may work out in some cases, you may be better off having more than just a 401(k).

You might also consider opening an individual retirement account (IRA). You could also open a taxable investment account. These accounts may work better for you than a 401(k) because you choose where you open them. That means you get to pick where and what you invest in rather than having a 401(k) plan force you into a limited set of options that may come with high expenses.

Past performance is the best indicator

When you research investments, you’ll likely see a section detailing the investment’s past performance. And although that may sound good, the truth is it isn’t an indicator of the investment’s future performance.

No one has a crystal ball. What happened yesterday may have nothing to do with what happens tomorrow. For instance, a company with a stellar performance record before a recession may go bankrupt when a recession hits.

Past performance is something you should consider, but know that it doesn’t promise any given returns in the future. Instead, focus on the fundamentals of a company or investment.

Selling during a volatile market will protect you

When you see your investments taking wild swings from day to day, it’s easy to get worried. You may think that selling your assets today and waiting until the market calms down will protect you from the storm. Unfortunately, that may not work out.

Volatile markets can have wild swings both up and down. If you sell once investments have started to dip, you could miss out when markets begin their recovery. The best days in the market often come after the worst days. If you don’t reinvest at the perfect time, you may miss out on these fantastic opportunities. This could dramatically reduce your investing returns.

A smart money move to make in a volatile market could be holding a diversified portfolio for the long term so the wild swings even out over time.

Gold is the best investment

Gold is an investment that many people have misconceptions about, including the idea that it’s the best investment. Historically, gold may have a good track record. But what happens if a gold mining company finds a massive supply of new gold? If the supply exceeds the demand, gold prices could plummet.

When you invest in only one thing, such as gold, you open yourself to huge risks. Other assets may outperform gold and provide better overall returns if gold performs poorly for an extended period. It’s generally smart to invest in a diversified manner rather than putting all your money into one investment.

Bonds are best for retirement

Bonds, which is a fancy name for debt, are normally viewed as a stable source of investment returns and retirement income. Many investment experts recommend slowly switching from stocks to bonds as you get older.

Unfortunately, the broader economic picture has made this strategy less certain. The price of bonds increases when interest rates drop. Interest rates have been falling for decades but may start rising in the future. When this happens, the price of bonds may decrease.

Instead of blindly following a rule of thumb, consider why you want to own bonds. If your reasoning aligns with the investment and its risks in the current environment, consider adding bonds to your portfolio.

Big-name companies are the best investment

Buying shares of big-name companies — such as Google, Amazon, Apple, and Facebook — can be viewed as some of the best ways to invest by new investors. These stocks have all had meteoric rises in their prices from when they first debuted on the market.

But big companies aren’t always a good investment. Although they may have had reliable performances in the past, their futures may hold risks that result in lower returns. Some behemoth companies even end up going out of business, such as Toys R Us and Circuit City.

Large companies aren’t always able to adapt to changing times. If they can’t, your investment in them may lose value. Instead, it may be wiser to invest in a diversified portfolio of companies of different sizes.

There's no risk

When you look at the long-term historical returns of the stock market as a whole, the market appears to provide reasonable returns. If you only look at this long-term trend, it’s easy to think you face no risk when investing. That isn’t the case.

You always face risks when you invest, even when you invest in the most simple and boring investments. If you suddenly need your money, you may have to sell when an investment’s price has decreased. This means you don’t get the advantage of the long-term historical returns because you had to take the money out of the market early.

If you’re nervous about the risk of investing, that’s a good thing. It forces you to educate yourself and find ways to decrease your risks while still meeting your financial goals. If you’re still too nervous about investing, talking to a fee-only fiduciary financial advisor may help.

It's too risky

According to FinanceBuzz’s survey, one of the top-cited reasons Americans aren’t investing is that they’re afraid of losing money. Investing is risky, as we just discussed, but the degree of risk depends on what you invest in and how long you plan to stay invested.

Some investments are incredibly safe, such as certificates of deposit, money market accounts, and U.S. Treasurys. And even some riskier investments have historically provided positive long-term returns as long as you stay invested and invest in a diversified manner.

Taking a risk tolerance assessment may help you decide on the best path for you. Based on the evaluation results, you’ll be able to craft an investment plan that allows you to take the risks that fall within your comfort level. These sorts of assessments are often part of signing up for an investing app or opening a brokerage account.

The bottom line is that If you don’t take any chances, you reduce your potential returns. This may be disastrous, especially if the cost of living increases over time and the money that’s just sitting in your savings account can’t keep up with those costs.

If you didn't start early, it's too late

You’ve probably heard the saying “The best time to plant a tree was 50 years ago. The next best time to plant a tree is today.” Investing works the same way.

In an ideal world, people would start investing early in life to take advantage of compounding returns. But even if you didn’t start early, the next best time to start investing is today. If you start investing now, you’ll have more time to watch your investments grow than if you start next year.

Consider using an investing app to simplify the process of starting to invest while still meeting your goals and current financial situation. Once you’re more comfortable, you can research more investment providers in detail and move your money at that time if that feels like a good fit.

Bottom line

Investing myths are commonplace in our society because people haven’t taken the time to research the facts. And, quite frankly, investing can be an overwhelming topic to research on your own. But now that you’re aware of why these investing myths aren’t a reality, you can share this knowledge with your friends and family.

More importantly, you can quit using these myths as a reason to put off investing. It’s easier than ever to start because now you know that you can start investing with just the change you have in your pocket.


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Author Details

Lance Cothern Lance Cothern, CPA is a personal finance writer and founder of MoneyManifesto.com. Lance's work covering several personal finance topics has been published in U.S. News & World Report, Business Insider, Credit Karma, Investopedia, and several other publications.

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