8 Investment Myths Debunked: Invest Smarter for Your Future

Today I am going to debunk a few investment myths. You will know ‘why individual investors are failing miserably and how you can avoid being one of them’.

Table of Contents:

1. I am too young to plan for retirement
2. East or west FDs are safe and best
3. I can never be as good as Warren Buffet or Rakesh Jhunjhunwala so why try?
4. Stock markets can earn me quick bucks
5. Timing the market is important
6. There is no such thing as too much diversification
7. The best way to make money is by investing in what is hot
8. Saving tax is the only objective for me to Invest

1. I am too young to plan for retirement

Have you started?

You may be saying ‘Who…. me? I am too young to be thinking about retirement”.

It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly.

If you were smart, and planned for retirement when you were young, your retirement years will be really those “Golden years”. If not, you need to compromise and you need to work longer and retire later than others.

Fact: You are never too young to plan for retirement. The earlier you start, even with small amounts, the more time your money has to grow through compound interest, giving you a head start on building a secure retirement nest egg.

2. East or west FDs are safe and best

Nothing wrong with investing in FDs. FDs are really safe and it gives us a fixed return. But there is no meaning in investing all your money in FD. The post-tax return of an FD will hardly beat inflation.

If your investments are not beating inflation, then your money is losing its purchasing power. FDs are safe but not always the best option.

Fact: While Fixed Deposits (FDs) offer guaranteed returns and safety, they may not always outpace inflation. This means over time, the purchasing power of your money invested in FDs could erode. Consider diversifying your portfolio with investments that have the potential for higher returns, alongside FDs for a balanced approach.

3. I can never be as good as Warren Buffet or Rakesh Jhunjhunwala so why try?

In the words of Warren Buffet “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

You don’t need a super brain for making investment decisions. You only need common sense and discipline. If you don’t have enough time and expertise, then you can get assistance from professional financial planners.

Fact: You don’t need to be a financial prodigy to be a successful investor. While Warren Buffet and Rakesh Jhunjhunwala are investing icons, achieving similar feats isn’t the only path to financial well-being. By following a disciplined, long-term strategy, educating yourself on fundamentals, and potentially seeking professional guidance, you can build a solid investment portfolio that meets your individual goals.

4. Stock markets can earn me quick bucks

This is a common myth among investors. The stock market will reward the long-term investors. The stock market is a system that transfers money from investors who are fearful and greedy to investors who are balanced and rational.

You need to be calm, patient, disciplined, and rational. You don’t have to be smarter than the rest; you have to be more disciplined than the rest.

Fact: While the stock market has the potential for high returns, it’s not a get-rich-quick scheme. It rewards long-term investors who can ride out market fluctuations with a disciplined approach. Focusing on short-term gains can lead to impulsive decisions based on fear and greed, potentially harming your overall investment strategy.

5. Timing the market is important

Investors often spend a lot of their time trying to identify when the market is very low or high, and timing the purchase and sale of investments accordingly.

In other words, they want to time their exit when the market has reached its top and to time their entry when the market has reached a bottom. This is not a practical idea because there are so many influencing factors to the stock market.

Predicting all the factors and making investments is practically not possible. Instead of that stagger your investments through mutual fund SIP, and STP and stay invested for the long term.

Fact: Accurately timing the market’s highs and lows is incredibly difficult, even for seasoned professionals. A more reliable strategy is investing consistently through a method like Systematic Transfer Plan (STP) or Systematic Investment Plan (SIP). This approach averages out the cost per unit over time, reducing the impact of market volatility and promoting long-term growth.

6. There is no such thing as too much diversification

Diversification is needed. A well-diversified portfolio can be created with 10 stocks or 3 mutual funds. Having more than 20 stocks or 6 mutual funds can dilute your returns.

The reason is you are not only investing in the best stocks and funds, you are investing in above-average and average stocks and funds.

So your returns will come down. Instead of over-diversification, you need to concentrate on a few stocks. It is possible to achieve the required diversification with a few stocks or funds.

Fact: Diversification is key, but too much can dilute returns. Aim for 15-20 stocks or 4-6 mutual funds across asset classes for a balance between risk mitigation and growth.

7. The best way to make money is by investing in what is hot

If you are investing in what is hot, then you are following the crowd. If you follow the crowd, you will get what others are getting. You will not get anything more.

You need to be fearful when others are greedy and you need to be greedy when others are fearful. So don’t go by the market trend or the hot pick of the month. Think like a contrarian and follow value investing.

Fact: Chasing “hot” investments can lead to overvalued holdings. Focus on long-term value and consider contrarian strategies for potentially better returns.

8. Saving tax is the only objective for me to Invest

Which group you are in? There is a group of people who invest just to save taxes . They will not bother to invest anything more than that. They will meet their objective of saving tax.

There is another group that invests to save tax as well as to save for their other life goals like retirement, and children’s future. They will meet the objective of saving tax and achieving other life goals. Kindly check which you belong to which group.

You can be an assured successful investor if you can avoid these investment myths.

Fact: Tax savings are a benefit of some investments, but shouldn’t be the sole objective. Successful investors aim to build wealth for long-term goals like retirement or a child’s education, using tax advantages to enhance their overall strategy.

The best way to avoid these investment myths and be successful with your investments ALWAYS, is to create a specific financial plan which addresses all your financial needs and goals.

If you have any comments or questions, write them in the comment box below.

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