How do you make investment decisions? Do you look at data? Or look for an interesting opportunity? Interestingly, most people don't look at facts when making decisions. They prefer a good story.1
Maybe that shouldn't surprise us. Stories appeal to our emotions and our values.2 Stories help us make sense of the world and can be a great learning tool no matter how old you are.
However, stories may not be the best foundation for your investment decisions. Because stories are not always based on facts. Even the smartest people can have a hard time making sound investment decisions when a story is rooted in common myths about investing.
Let's take a look at the stories out there that may be clouding the facts or misleading us with faulty information about investing.
1. Cash is always Safer than Stocks
Myth: The markets are volatile, and you lose in the long run. It's better and safer to keep cash in a savings account rather than investing in the stock market.
Fact: Markets do fluctuate. But, since 2009, the S&P 500 has seen average gains of about 15% annually (and it's risen more than 70% of the time over the past century).4 Keeping your savings in cash means growth won't necessarily keep up with inflation. Over the long term, that could reduce the value of your savings. On the other hand, stock investments have more potential to grow, earn, and work harder for you.
2. I need $X before investing.
Myth: I can't start investing until I have a certain amount of money. OR, Only "wealthy" people can afford to invest.
Fact: If you want to invest or start building wealth for the future, you don't have to meet any financial threshold to make it happen. There are a wide variety of opportunities and flexible options for different investing purposes and goals.
3. Investing in the market is pretty much like gambling.
Myth: The market is like a casino, and investing means I'm really just blindly betting on winners - and I could lose it all at any moment.
Fact: Although investing does involve risk, you CAN manage risk and dial in your investments based upon your personal goals and feelings about risk. Gambling is a flashy, fast, zero-sum game. There's a lot of action, and the house usually wins. Building an investment strategy is based upon your goals and personal circumstances. It's more like farming - the outcome isn't guaranteed, but there are time-tested principals to follow.
4. I don't have time to invest
Myth: Investing is time-consuming. I don't have time to do the research on stocks - let alone time every day to trade stocks!
Fact: We would recommend that you work with a financial professional. Not everyone has the time, talent, or temperament to manage their own investments. When you work with an investment management firm like Creekmur Wealth, you have the benefit of our experience, professional tools, and an advisor who will help you develop a plan to meet your goals.
5. When the market's in trouble, it's time to SELL!
Myth: When stocks start to tumble, it's best to cut your losses and go to cash (see point #1)!
Fact: This myth can be very costly, because panic selling can be a mistake. In many cases, bailing out when the stock market moves down can be the wrong decision if your long-term goals haven't changed. That's because you may wait too long to reinvest and then miss out on the upward recovery.
Myth: There are "winners" and I need to be able to pick one to do well in the stock market.
Fact: Making millions by picking the big winner makes for a great movie, but the reality is that you don't have to cherry-pick a winning stock to build wealth.
Anyone can choose the "unicorns" of investing: time, consistency, & a well-planned, goals-based investing plan.
Our goal at Creekmur Wealth is to work with our clients to develop a unique plan that will help you stay on track toward your goals. We want to be sure you are educated about your investment plan so that you can make decisions based upon facts.
Creekmur Wealth Advisors may be reached at 309-925-2043 or Info@Creekmurwealth.com.
Citations.
1 -https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/narrative-fallacy/
4 - https://www.cnbc.com/2022/01/25/long-term-investors-shouldnt-worry-too-much-about-stocks-being-10percent-off-their-highs.html