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Unpacking the myths of investing in the stock market

Financial Markets Wall Street
Posted at 5:32 PM, Jan 22, 2021
and last updated 2021-01-22 17:32:27-05

This article provides information and education for investors. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

Why aren’t you investing?

Maybe you grew up thinking the stock market was a scam. Maybe you’re worried that you’ll lose all your money. Maybe you think you don’t have enough to start. Many Americans remain uninvested, even though it can hurt their long-term financial future. According to a 2019 Pew Research Center survey, only about 35% percent of U.S. adults said they personally owned stocks, bonds or mutual funds outside of retirement accounts.

While the system may have originally been built to benefit the few, it is growing to accommodate the needs of the many. No matter what your reason for avoiding investing is, you can begin with confidence after busting these stock market myths.

Myth #1: I need to know about the stock market to start investing

If you’re worried that you don’t know enough about investing to get started, consider this: The people who trade stocks frequently, confidently swapping Amazon for Apple when they see fit, rarely “beat the stock market.” Often, buying a simple index fund and letting it grow over time will make you more money, financial advisors say. So don’t worry that a limited investing knowledge will hold you back.

Having a cautious attitude when it comes to investing can be beneficial and keep you from making any rash decisions. Learning how to invest is easier than you might think, and definitely does not involve being an investing expert.

It’s getting started as soon as you can that is key, says Chloe Moore, a certified financial planner and founder of Financial Staples in Atlanta.

“Investing is an important tool for building wealth,” says Moore. “We all want our money to work for us, and investing plays a key role in this. The earlier you invest, the more time your money has to grow.”

Myth #2: The system isn’t meant for me

Different factors contribute to the belief that the stock market isn’t for everyone. Some people might feel this way because they can’t find a financial advisor who looks like them. Maybe it’s because of an inherited distrust or a lack of confidence in managing money, or maybe it’s a fear of discrimination. Maybe they just don’t think they have enough money to start.

These concerns are real, but there are more tools than ever to help people learn about personal finance and start investing. Groups such as the Association of African American Financial Advisors can help investors connect with advisors of color.

Robo-advisors are another option, and they’re a great way to get started investing, Moore says. They use computer algorithms to choose and manage your investments for you, no matter how much money you have (and often for a fraction of the cost of a traditional financial advisor). Ellevest is a robo-advisor that specializes in helping women invest. (Ellevest is a NerdWallet advertising partner).

“These automated online investment platforms can help you find the right mix of assets for your goals and risk tolerance,” Moore says. “They also rebalance your account on a regular basis, and some will optimize your portfolio for tax efficiency.”

Myth #3: If I open an investment account, I’m invested

Just like a checking or savings account, just because you’ve opened an account doesn’t mean you’ve put money in it.

Some investment accounts have a minimum initial deposit, but many do not, meaning you can open an account with $0.

Once you open the account, you’ll need to add money before you can start buying investments. If you’re not ready to commit your dollars to the stock market just yet, you can still dip your toes in the water by opening an account for free. There are even stock market simulators you can use to practice investing before you do it for real.

Myth #4: I’ll probably lose all my money

While this is technically true, it’s highly unlikely. Short term variations in the stock market may make your investment account’s balance go up or down. But if you have a diversified portfolio (which may include low-cost index funds) and hold on to those investments for the long-term, there is a greater possibility for growth over time.

Myth #5: I have to pay for a financial advisor

Just because someone is a professional doesn’t mean they can predict the stock market. A financial advisor may come in handy if your financial life is getting more complicated and you need some help with retirement or estate planning, but otherwise, using a robo-advisor or choosing investments yourself works just fine for most investors.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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Alana Benson writes for NerdWallet. Email: abenson@nerdwallet.com.