Debunking the 5 common myths of investing

If you ask the ordinary person in Singapore, what they think about investing their hard earned money, most of them will probably want to stay clear from it. 

People think that investment is risky business and that only those with good financial knowledge and the financial analysts type can dabble in it.  But that is only because a lot of misconceptions and myth have been perpetuated by stories of sudden wealth and massive losses.

Here are some myths debunked.

Myth 1: Investment is risky. If you want high returns, it must come with high risk.

Truth: The lower the risk, the higher the returns.

Say, you bought shoes from an online store for $100. Now you never know if the shoes are going to fit you well. So you risk $100.

What if you got the same shoe at a discount, and you bought it for $50? Your risk is now lower.

When you tried them on, it didn’t fit. And you want to sell it. Knowing that it is valued at $100 you sold it to a friend for that price. You made $50.

If you bought the same shoe for a cheaper price, say $20. Your risk is lower. And if you sold at $100. You will make $80. Your returns are higher!

Myth 2: You need to have a lot of money before you can even think of investment.

Truth: You need less than S$2,000 to start investing.

Compared this to the hundreds of thousands needed to invest in other vehicles, such as properties. You certainly don’t need to loan the $2,000.

If you are interested in investing in SBS Transit Ltd, at the current share price is $1.36 with minimum purchase of 1,000 shares, the investment cost will be $1,360.

In the US market, you can even buy just one share. For a brand like Coach, that would mean spending just US$53 only.

Even if you have no experience in the stock market, you can just invest in the S&P 500 Index. It has an average annual return of 9.4% since 1965. That will beat any sort of funds available in the market. And you don’t have to pay any administration fees either!

An investment of S$20,000 in 1965 would have gotten you $1.5 million by 2012. With a little patience, anyone can make his or her first million.

Myth 3: Once you invest, you have to keep track of share price movements on a daily basis. 

Truth: It takes minimal time to keep track of the company, not the shares.

Most people don’t realize that the stock price is not a true reflection of the business it represents in the short run. Buying stocks purely based on price movement is not investment. It is speculation; now cleverly masked as short-term investment.

When we buy stocks, we buy a portion of a business. So we need to look into how well the business is doing and the share price only comes into the picture when we have intention to buy or sell.

As shareholders of the business, we should expect the company to work for us. So before buying into a company, you need to spend some time to make the initial assessment of the company. This will probably take a few hours. The rest is just a mere 15 minutes to generate passive income.

Myth 4: Investment is about making a lot of money in a short period of time. 

Truth: Nobody became rich in a short period of time. Neither will you.

The quickest way to make money is to strike the lottery every week. We all know that this is not logically possible. Yet, everyone emotionally hope that they will be the lucky one. The irony is that people who want to become rich overnight never did. Those who claim they did may not be telling the whole story.

All businesses take time to grow. Warren Buffett, the legendary investor, once said, You can't produce a baby in one month by making nine women pregnant.

Myth 5: To invest on your own, you need to have sophisticated financial and accounting knowledge.

Truth: Why aren’t all accountants rich?

Yes, you do need to understand some fundamental accounting terms, but the rest of it is about translating and making sense of the business’ financial data and its operations.

You need to turn complex numbers into simple layman terms by relating to real life scenarios so that it make sense.

Our academy have trained people as young as 18 years old and as old as 70, with no finance background. So you don’t have an excuse to not start growing your money slowly but surely.