What’s the biggest investing myth you believed at first?

Question

When you first started investing, was there a common belief or piece of advice that you later realised wasn’t quite true?

Maybe you thought stock picking was the only way to grow wealth, or that investing was only for the rich. Perhaps you avoided ETFs thinking they were too complicated or assumed timing the market was a winning strategy.

I'd love to hear everyone's thoughts :-)

Answer

When first starting out in investing, many people encounter common misconceptions that can shape their initial strategies and decisions. Here are a few myths that are often debunked with experience and further learning:

Stock Picking as the Only Way to Wealth: Initially, many investors believe that picking individual stocks is the key to achieving significant returns. However, this approach requires a lot of research, risk management, and often a bit of luck. Over time, many realize that diversified investments, such as ETFs (Exchange-Traded Funds), can also lead to wealth growth, often with less volatility and risk.

Investing is Only for the Rich: This is a common barrier that discourages many from starting their investment journey. The truth is, with the advent of micro-investing apps and platforms that allow for small initial investments, almost anyone can start investing with a relatively small amount of money. The key is to start early, invest regularly, and let compounding work its magic.

Complexity of ETFs: Some beginners avoid ETFs, thinking they are complex financial instruments. In reality, ETFs can be an excellent way for investors to gain exposure to a broad range of assets or a specific sector, without the need to manage multiple stock holdings. They are also useful for achieving diversification across different asset classes.

Timing the Market: Many new investors think they can outsmart the market by timing their entry and exits to maximize gains. However, numerous studies and seasoned investors suggest that time in the market is generally more effective than timing the market. Consistent, long-term investing tends to yield better results than trying to predict market highs and lows.

Reflecting on these points, it’s clear that investing is not just about making choices but also about continuous learning and adapting. Whether you’re considering ETFs, stocks, or other investment vehicles, it’s crucial to stay informed and understand that different strategies work for different goals and risk tolerances.

At Pearler, we encourage you to stay curious, ask questions, and continuously seek knowledge to make informed decisions that align with your financial goals. Happy investing!

You can find out more about this topic here: Etf Vs Stock

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Great question Emily.

I thought that most stocks perform about average so if you just pick slightly better than avg companies, you’ll get better than avg performance.  But that doesn’t work for multiple reasons.

1- Most stocks underperform the market over the long run (market gains are driven by a small group of massive outperformers that are damn near impossible to forecast in advance).  This is why the odds are against picking stocks.

2- Markets are constantly ‘pricing’ everything.  So a better than avg company will have a higher than avg valuation, which eats away the performance, meaning the company has to beat what the market expects to then give you outperformance.

Cheers, Dave

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FIRST TIME INVESTOR

Emily Chen.

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Dave Gow - Strong Money Australia

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