Have you been interested in entering the stock market but hesitant to give it a try? Learning to invest is easier than it’s ever been, but it’s important not to get sidetracked by the myths that conventional wisdom has accumulated on the topic.
It may be comforting to talk investments over with a group of friendly people, but don’t rely on your investment club for anything more than good company and coffee. Investment clubs suffer from a kind of “group-think” that produces less than stellar results. A University of California study found that investment clubs underperformed the market by 3.8 percent per year, and they did even worse than the average individual investor. They also tend to buy more stocks than an individual typically would, which adds up to higher fees for you to pay.
While both activities do involve some risk-taking and can provide payoffs, there’s a very big difference between investing and gambling. When you gamble, the odds are mathematically stacked against you. When you buy stocks, you’re acquiring part of a business, and you benefit if it flourishes. There is no external force (like a casino) that needs you to lose money. People who think of the stock exchange as gambling tend to fulfill their own expectations because they invest in the riskiest possible ventures, hoping to win the jackpot. A portfolio made up of the highest risk investments isn’t likely to produce good outcomes.
The digital revolution has changed the face of investing. Where large commissions to stockbrokers used to be the rule, a cornucopia of online options now exists, along the entire spectrum of price points. And that professional expertise? It turns out to be mostly smoke and mirrors: Pundits in the financial press have to answer to their advertisers, so their goal is to attract a big audience by creating interesting content. Even private advisors don’t end up beating the market with any reliable frequency, according to a peer-reviewed study published in The Journal of Finance. It turns out that your carefully prepared personal investment plan is statistically likely to be as good as the advice of most investment professionals.
If you’re interested in entering the stock market, you can learn a lot while building a diversified portfolio. Remain aware of your personal financial situation, don’t fall for these common investing myths, and you too can benefit from a direct stake in global corporate prosperity.
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