Are These Common Misconceptions Keeping You From Investing?
Anybody can be successful at investing but a false belief about money can cost you big. We examine five common misconceptions.
Published: Wednesday, November 16th 2016
The only thing standing between you and the kind of life you want to lead, is you. This is true for your health, your relationships, your career, your spirituality, your wealth. The list goes on.A lot of the time it’s a false belief or misconception that can cause us to get in our own way. This is especially true for investing. There’s a lot of bad opinions and sensationalism around money and the economy that can skew our perceptions. That’s why we’re going to remove five common misconceptions about investing money from your life.
1. I Will Make a Lot Of Money Quickly
Investments can come dressed as many things, but a get-rich-quick scheme they are not. That’s called a pyramid or ponzi scheme, and it doesn’t end well for anybody. The first, and most important, lesson in investing for beginners is that it takes time.If investing meant everyone could make money quickly, everyone would be doing it. But even when it comes to the basic investment vehicle, your retirement, only 6% of South Africans save up enough. Whatever your investment goal, consistency and self-discipline over a longer period will get you there. Even when you’re starting small, because: compound interest.
2. It’s Not Safe, I Could Lose Money
Putting your hard-earned money into any sort of investment can seem risky, and it is. But the investor controls the amount of risk they’re exposed to.A good investment broker will advise that the longer your time horizon (to when you plan on cashing in), the higher the risk (or volatility) should be. This is because a highly volatile investment (like equities) shows great gains and losses in the short term. But, should you trace a line through the average steady growth of that investment over a longer period on a graph, you’ll see it goes up, up, and up.But, should you only have five years before you retire, a conservative option, like cash or bonds, would be more up your alley. It’s not gambling, it’s a strategy.
3. It’s Safer To Grow Your Money At The Bank
A bank is a good place for your cheque account and an emergency fund. It is not, however, the place where money grows. We have inflation – the increase in the cost of living that reduces the purchasing power of our money – to thank for this.Your money may be growing at say 5% in your 32-day notice account at the bank, but the inflation rate in South Africa is currently 6.5% according to the 2016 Consumer Price Index (CPI). That means your money is losing value 1.5% faster than it’s ‘growing’. So the figure may look like it’s increasing, but you’re actually losing money.
4. I Need An Investment Broker
Look, investing isn’t rocket science. You can learn to do it all (even hedge funds) if you just take a little time to do your homework. Get a basic understanding of how money works. Satrix 40, as an example, allows you to pop online and start investing in your personal capacity. So do most passive investment vehicles, like exchange traded funds (ETFs), and many others.If time is money, however, a broker can help, if you choose the right one. You just need to ask your potential broker the right questions, like his track history investing for other clients.
5. I Can Start Later
There are 365 days in the year. Some day isn’t one of them. Cheesy, we know, but true. There’s a book that’s not widely available called The Slight Edge by Jeff Olsen. It basically demonstrates the principle that success in life is achieved through inches of progress, and not miles.He illustrates so powerfully the cost of waiting to start doing anything worthwhile. He uses the example of two friends (both 24) with a $1 million savings goal for retirement. They work out that if they each put away $2,000.00 every year for six years and then let it gather interest, they will both reach their goal at age 65.One friend starts immediately and stops at age 29. He puts away $12,000.00 in total and that grows over time to reach his goal.The other friend waits. And waits. He eventually starts putting the same annual amount away but only starts at 30. He saves $2,000.00 every year for 33 years before he can stop… to reach the same goal! What cost his friend $12,000.00 for starting early, cost him $66,000.00 for waiting.Moral of the story? Don’t let what you want cost you five times as much because you don’t start today.