“Investing is like gambling.” Is it really? Here are some of the common investment myths we might have heard from our aunties, uncles or friends, and the truth behind them.
Investing can be daunting, involving both risk and reward.
We’ve not only heard success stories of investors becoming millionaires, but also stories of investors getting their fingers burned when they take too big a risk. It’s these stories of failure that have led to the investment myths we might have heard from our aunties, uncles and friends. The speculation around cryptocurrencies and meme stocks have only added fuel to the fire, particularly conversations where investing is associated to gambling.
Here are some of the common investment myths around, and the truth behind them.
Myth #1: You must wait for the market to crash before you invest
‘Buy low, sell high’. In an ideal scenario, investing when the stock market hits rock bottom would allow you to reap the greatest returns.
However, the action of trying to time the market is easier said than done. The market is unpredictable and even active fund managers can’t beat the market.
Hindsight is also always 20/20. Looking back, there would have been times when the market appeared to have bottomed — just rewind to March 2020 when the world was in great uncertainty over the future of the economy due to COVID-19. At that point in time, the outlook was bleak. Who could have predicted that the market would recover strongly in less than a year to the level it’s at today?
Rather than waiting for a crash to start investing, you should start investing as early as possible in order for your investments to grow over the years.
Myth #2: If you buy stocks, you will definitely lose money
Investing in stocks allows you to grow your cash via capital appreciation, or earn regular dividends simply by holding the shares. This does come with a degree of risk, particularly when the stock price falls. However, markets have shown to go up over time — just take a look at the S&P 500 Index over the years.
The gains from your stock investment also depends on the stock you invested in — for example, blue-chip stocks that hold steady, dividend-yielding stocks that reward you with passive income, or high-risk meme stocks.
If you’re risk averse, rather than try to pick stocks, you can instead invest in exchange traded funds (ETFs), which are a well-diversified basket of securities that are also traded on the stock exchange. This means instead of selecting a handful of stocks, you invest in a single product that has exposure to multiple different stocks, depending on the index it seeks to track.
Myth #3: Investing in the stock market is the only option you have
Today, the stock market isn’t the only way to grow your wealth. Stocks aside, you can also invest in other asset classes such as bonds, unit trusts/mutual funds, ETFs, real estate investment trusts (REITs), forex, gold, commodities, cryptocurrencies and more.
For example, if you’re extremely risk averse, you can consider investing in bonds, or opting for a robo-advisor portfolio with greater allocation to fixed income.
Myth #4: You must always monitor the market, if not you will lose money
Monitoring the market daily is for traders who make money through short-term price movements.
If you’re an investor looking to grow your wealth in the long term, studies have shown that the key to success is time in the market. This means staying invested over a long period of time — months, years and even decades.
On the contrary, frequent market monitoring could be detrimental. It could lead to feelings of fear and worry, particularly at times when the market is down, which could trigger you to sell off your investments prematurely.
Rather than monitoring and trying to time the market, you can instead employ a dollar-cost-averaging strategy, where you make consistent investments automatically, regardless of the market situation.
That’s not to say you can’t check the market at all. Occasional checks (monthly or quarterly), shows you how well your portfolio is doing and even allows you to make lump sum injections if the market is trading at a discount.
Myth #5: You must have a lot of money before you can invest
Today, you can start investing with as little as S$1.
Robo-advisors have made it easy for the common man on the street to start investing. This is particularly so for the robo-advisors that require no minimum investment amount for you to get started. That means investing the spare S$50 you have in your bank account!
Other robo-advisors do impose a minimum investment amount. However, these are relatively achievable, with minimums such as S$100, S$1,000, S$3,000 or S$10,000 for certain portfolio types.
Starting with a small amount can help to ease the early jitters of investing. You get your feet wet with a comfortable amount of money, and build confidence to gradually increase your investments.
Myth #6: It is very expensive to invest in overseas markets
Gone were the days when you had to rely solely on local (and expensive) brokerage accounts to purchase stocks. New, digital brokerage accounts have given local brokers a run for their money, dangling attractive promotions and incredibly affordable fees.
These days, investors can easily access overseas markets such as the US and Hong Kong, with the same brokerage account used to purchase Singapore securities. This gives local investors more investment opportunities, as overseas markets such as the US have far more listed companies available, including Singaporean companies such as Sea Limited.
Investing in overseas stock markets has also become cheaper than ever. You can invest in US stocks for commission fees as little as US$0.99. Some brokers don’t charge a minimum commission fee, but a percentage of your trade (i.e. 0.08% for Tiger Brokers, Saxo and FSMOne). This is comparative to (or at times cheaper than) what you’d pay to invest in the Singapore market.
Myth #7: You are too young to start investing
The best time to start investing is yesterday.
Starting your investment journey at a young age of 20, versus starting at the age of 40 can lead to vastly different outcomes. At a younger age, time is on your side. You have decades ahead of you to ride out market volatility and allow your investments to compound year on year. This in turn allows you to take on more risk and invest in asset classes that have the potential to reap higher returns, such as stocks, unit trusts, ETFs or even cryptocurrency.
Investing has also been made far more accessible today, compared to the generations before us. We have affordable brokerages to choose from and robo-advisors that can help us automate our investments based on our risk profile. We also have a trove of educational material online (like this blog!) to teach us the A to Zs of investing.
Your future self will thank you for starting your investment journey young, especially when life catches up and there are other commitments to attend to, such as buying a home, bringing up kids and looking after aging parents.
Myth #8: Investing should only be left to the pros
Can you leave investing completely to your financial advisor or relationship manager? Sure you can. However, they do charge a fee for their services, much like how you’d pay the Grab delivery rider to deliver you food.
Robo-advisors have made investing straightforward and easy for beginners and young investors today.
You can invest in a diversified portfolio simply by filling in your risk profile and investment preferences on the robo-advisor platform. Robo-advisors also charge fees which are affordable, ranging from 0.4% to 1% p.a. This is one way to start your own investment journey, without having to be a professional in the financial industry.
So, should you invest?
You won’t lose your money by keeping it in your savings account or your cute piggy bank, but you also won’t be able to protect it from getting eroded by inflation.
While investments can come with a degree of risk, it depends on your asset allocation and the type of investment product you invest in. If you are extremely risk averse, you can allocate a larger portion of your portfolio to fixed-income products, while avoiding or reducing the allocation to high-risk products such as cryptocurrencies.
The sooner you start investing, the longer the runway for your investments to tap on the power of compounding. You can get started with a brokerage account if you plan to purchase your own stocks and ETFs, or opt for automated investing with a robo-advisor. Start by comparing the best providers on the SingSaver platform!
Read these next:
Investment Guide: SingSaver’s One-Stop Investment Shop
How To Actually Start Investing In Stocks: A Step-By-Step Guide
Robo-Investing vs DIY Investing: Which One Should You Choose?
7 Popular Types Of Investment In Singapore (And Tips To Use Them For Optimal Gains)
Uniquely Singaporean Things We Do To Accumulate Wealth
By Ching Sue Mae
A flat white, an adventure-filled travel and a good workout is her fuel. This Manchester United fan enjoys sharing knowledge on personal finance while chasing the dream of financial independence.