Understanding the ropes of investing can be
Understanding the ropes of investing can be interesting, yet challenging. The journey of investing your funds can be comparing to that of a roller coaster ride. You reach highs where you gain value for the price you have paid, and then there are the lows when you incur losses.
A smart investor observes and learns the rules of the game and is prepared to face the volatilities of the investment world. Be it the stock market or real estate or gold; a shrewd investor successfully predicts the success rate of an investment. For example, someone who has been trading for a while will know that equity markets swing wildly from day to day on the smallest of news. He will, therefore, know not to fall for the stock market madness but to stick to his homework and be rational.
No doubt smart investors do well for themselves, but there are a large set of investors who are still in the nascent stage of investing. They are trying to find a footing in the investment world. In this process, they end up making faulty decisions based on hearsay or information from random online pages. They fall prey to common investment myths and make huge losses. To avoid this, we will be exploring 5 common investment myths all investors need to beware of. Let’s take a look at each of them
1. Real Estate investment is a sure win
A lot of investors vouch for real estate as a great investment option and we don’t deny that. But the problem arises when people assume that a real estate investment is a sure win. Most Singaporeans believe this myth because the current and the previous generations have achieved phenomenal returns from property investment. This was due to the economic growth Singapore has enjoyed after independence. The continuous upswing in the real estate sector has led to people buying properties at exuberant amounts, which they cannot afford. Hence it would be wrong to assume that real estate investment is a sure win.
2. Risk is bad
Although the preachings of Warren Buffett suggest to opt for high investments with low risk, we cannot typecast risk as something bad. Risk by itself is not a problem. It is only when people take risks that they do not understand then it becomes a problem. Without risk, there is no scope for garnering high returns. Risk and returns are correlated. It’s not possible to expect one without the other. Investing in stocks can at times be a high-risk financial decision. There are multiple external factors that affect the stock market. But the flip side to this is the higher returns that you would get. So, if you too have fallen for this common myth, then it’s time you increase the risk you take with your investments. Having said that, always know where you are head.
3. International investment is too risky
Many people think that overseas investment is very risky. We agree that it is risky but so are domestic investments. The thing with international investments is that people are unaware of the nitty gritties of international investing. This gives them a reason to term it as an unfavourable option for investments. However, if you have the required knowledge of investing in international stock exchanges, then there should be nothing stopping you from making an investment. Debunking this common investment myth again takes you back to the previous point of risk being considered a bad thing, which we know is not true.
4. Investments should be separated from all other aspects of your finances
We have a general tendency to compartmentalise our finances for different things. For example, out of our total income, we allocate some funds for our regular expenditure and the remaining is used for saving and investments. There is nothing wrong with doing this. But being rigid with these compartments can be detrimental to your finances. Let’s understand this better with an example. Suppose Mr. Lee has credit card bills with extremely high interests and has savings of the same amount he expended using his credit card, then it makes no sense to pay extra interest to the credit card company as you could have used money from your savings account. This way you would be using up your savings, but there will be a lesser outflow of funds.
5. Bonds are safe investments
Bonds are good investment options but they cannot be deemed to be completely safe. The 2008 financial crisis is proof that banks cannot be fully trusted. When they tell us that bonds are safe. With the fall in oil prices, bondholders have also taken the hit along with equity owners. In some cases, binds maybe safer in comparison to risky stocks as the bondholders get paid off first before equity holders, in case of liquidation. But at the end of the day, considering bonds to be completely safe is a common investment myth.
So, these were the 5 common investment myths; you need to stop believing in right away. We hope this will help you make smarter investment decisions.
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