6 Lies About Investing People Actually Believe
(Source: forbes.com)

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(Original link: forbes.com)

A 2017 Gallup poll showed only 54% of Americans invest in the stock market , down from 62% in 2008, just before the Financial Meltdown. It means 46% don’t invest. And there are probably a fair number among the 54% who do invest, but just barely. What keeps more people from investing in the stock market ? Some of it undoubtedly has to do with personal finances.
For example, statistically, people with lower incomes are less likely to invest. It's probably also a safe assumption people with a lot of debt also avoid it.
But what about the rest?
Investing lies Getty
For a lot of people, the real issue is fear! There are a lot lies about investing people actually believe. Unfortunately, it only takes one to keep someone from investing.
But there are at least six lies that are making the rounds, and keeping a lot of people out of the market.
Let’s dissect them – and dismiss them – one at a time.
1. Investing is Risky This lie is actually partially true, which is why it stops so many people. After all, stocks are risky. Just as they can rise in price, they can also fall.
But stocks don’t stay down – ever , and that’s the part that gets left out.
When you invest money for the long-term – and that’s the only way you should – you’re playing the averages. And those always work in your favor.
Taking a look at the very long-term, $100 invested in the S&P 500 in 1928 would have grown to nearly $400,000 by the end of 2017 . That translates to an average annual rate of return about 9.8%.
If you invest your money in a portfolio that consists of 60% stocks and 40% bonds, you can easily achieve an average annual return of greater than 7%. And you'd be doing that with a pretty conservative portfolio.
2. I Will Lose All of My Money Probably everyone knows a story of someone who lost all their money on an investment. That's certainly scary, but there's probably a good reason why it happened.
In most cases, a total investment loss happens for one of two reasons:
The person invested all their money in one or two stocks in the hope of striking it rich, or The person invested in something they knew nothing about, often on the advice of someone else. You can cut your chances of losing all your money just by avoiding those two mistakes.
If you invest in a diversified portfolio, which is the only way anyone should, there's historically no evidence you'll lose all your money.
Let's look at a recent example. During the Financial Meltdown, the stock market took its biggest fall in more than 75 years. From October, 2007, through March, 2009, the market lost 54% of its value.
That's a worst-case scenario.
And while a 54% decline is certainly bad, it doesn't approach losing 100% of your money. What's more, if you had 60% of your portfolio in stocks, and 40% in bonds, you would have only lost about 54% of the 60% invested in stocks. The 40% bond allocation would have been unaffected. Your actual loss would only have been 32%.
That's the bad news about that market. But there are actually two pieces of good news that are even more significant:
The 2008 crash lasted for only 17 months. The market is up almost 380% in the nine years since the bottom of the crash. If you simply ignored the crash, and held through it, not only would you not lose any money, but you'd actually be well ahead.
Invest the right way, and you'll never lose all your money.
3. It Is Way too Complicated to Invest This is another lie that lives on, partly because there can be some truth to it. I've heard them, we all have, those investment advisors and talking heads that speak some language other than English when they talk about investing. They'll ramble on, using cryptic terms like beta, standard deviation, and correlation coefficient.
It's all designed to impress their peers, to impress themselves, and to convince listeners and readers they know more than they actually do.
If you spend too much time taking in that kind of input, investing is way too complicated.
But it's also not true, at least on a practical level. Sure, you should never invest in anything you can't explain to your grandmother. But that mostly takes in exotic investments, like cryptocurrencies – and hopefully you're not getting tied up in those.
But please understand, you don't need to be an investment genius to invest. The investment industry has made tremendous progress in the past few decades. Through the use of mutual funds, exchange traded funds (ETFs), online investing, and automated investment services, simple investment is now available for the average person.
And you can find it everywhere.
In most cases, all you need to do is fund your investment account on a regular basis, and all the complication will be handled for you. That's as easy as it gets, and that's why you shouldn't spend any more time on this lie.
4. It Is Too Time Consuming There's a strange breed of investor known as a day trader. They’ve come into existence largely as a result of computerized investing. You've probably seen some i...