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6 Common Investing Myths (Part 1)

Investing is something that is still seen as something scary for most people.

Invest - concept with graphs and data
The concept of investing with graphs and data shown.

Whether you are an experienced investor or a beginner, the dangers investing entails is for everyone. But most of that danger comes from the fact that you don’t know can actually hurt you.

Learn about the beginner tips for stocks investing.

This is correct in particular to something you hear from someone else and then believes is true. It is never safe to believe everything you hear; sometimes it’s better to have some background first before deciding on placing your trust in that statement.

You need to have better judgment when it comes to determining the truths from the lies.

Here are top 6 of the common investing myths that you have probably heard out there in the market or from other investors:

1.     Investing in stocks is like gambling

This mostly causes people to shy away from the stock market. We must first review what it means to buy stocks in order to dispute this myth.

A share of common stock is ownership in a company. This entitles the holder – you – to a certain claim on assets as well as a fraction of the company’s profits. Investors usually think of shares as something that is a trading vehicle and forgets that stock represents the ownership of the company.

Making assessments regarding a company’s profit is not an easy task. Most of the time, the investors that try to do the aforementioned tasks end up causing the stock to fluctuate. You should learn to accept that the outlooks for business conditions always change, making the future earnings of a company change as well.

Over the long term, a company is meant the present value of the profits it will make. While in short term, a company can survive without profits due to expectations of future earnings. But no company can fool investors forever. The true value of the firm can usually be expected to show eventually.

Gambling, on the other hand, is a “zero-sum game.” It merely takes money from the loser while giving money to the winner. There is no value created whatsoever. But with investing, we increase the overall wealth of an economy.

When companies compete, they end up increasing productivity and make them develop products that tend to makes our lives better.

So, do not confuse investing and making wealth from something like a zero-sum game of gambling.

2.     Returns: what you see are what you get.

Average returns are something like online dating profile photos. They show a better portrait than what it really looks.

Advertising a specific return doesn’t automatically mean that it is what you’ll get. The returns you usually see in brochures are things known as “Time Weighted Returns.”

Time weighted returns assume that investors will put in all of their money in the fund for the whole year and won’t make any withdrawals. Though in reality, investors usually make contributions throughout the year.

And if you will continue to contribute more within the times where the fund is performing well, and less during times when it’s not, you will end up with a much different return than the one advertised.

A hand watering investments
A hand holding a small watering can is seen watering investments.

3.     Stocks that go up must come down

Even though this is true when it comes to physics, this law does not apply to the stock market.

There is no gravitational force that will pull your stock downwards. Most company stocks end up rising a lot in the course of years. As such, if you decided to believe that a certain stock you saw rise continuously will eventually come down hard, you would have ended up losing on the opportunity of gaining higher profits.

This does not mean that stocks do not go through corrections. What we’re trying to point out is that the stock price is a reflection of the company. If you end up stumbling upon a great firm with even greater managers, there is no reason to believe that the stock won’t continue going up.

So there you go, the first 3 investing myths that you have probably heard about investing.

Not everything you hear should be believed in. Remember to study up and double check all the information fed to you. Don’t just be satisfied with what is given. Do your research.

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