There are a lot of misconceptions about investing. Read on to get to the bottom of some common myths.
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Investing your money, whether in a brokerage account, IRA, or another account, is a great way to grow it into a larger sum over time. But there’s a lot of misinformation out there when it comes to investing. Here are a few important points a lot of people get wrong.
1. You need a lot of money to do it
The more money you have, the more wealth you stand to build in your brokerage account or IRA. But that doesn’t mean you can’t invest if money is tight.
Many brokerage accounts these days do not impose an investing minimum. So if you only have $100 to invest with, so be it.
Not only that, but many brokerages allow you to invest your money on a fractional basis. It used to be that if you wanted to own shares of a given stock, you’d need to buy them in whole increments. Now, you can generally buy portions of stock shares if full shares are out of reach.
As an example, let’s say you want to invest money in Walmart. As of this writing, Walmart’s stock is trading for about $153 a share. If you only have $50 to invest with, and your brokerage account allows you to buy fractional shares, you could buy 1/3 of a share. It’s that simple.
2. You must invest conservatively when you’re older
You’ll often hear that it’s best to stay away from stocks when you’re older — namely, when you’re in retirement. The logic is that at that stage of life, you might need to tap your portfolio to pay for living expenses in the absence of having a paycheck from a job. So you don’t necessarily have the time to sit back and wait out a stock market downturn.
But actually, holding stocks when you’re older is important. Stocks tend to generate much higher returns than safer investments like bonds, and dumping them completely could lead to sluggish growth in your portfolio. A better bet is to simply scale back your stock holdings. But don’t dump your stocks completely.
3. You need to know a lot about stocks to make money
It’s definitely a good idea to research companies individually before adding shares of their stock to your portfolio. But if you don’t have the time, energy, or mental space for that, there’s another option you can look at — ETFs.
ETFs, or exchange-traded funds, let you buy bundles of stocks rather than individual shares. And what makes them valuable is that you don’t have to put in a ton of research before buying them. If you add shares of an S&P 500 ETF to your portfolio, what you’re effectively doing is putting money into the stock market on a whole.
Buying ETFs can take a lot of the pressure off as an investor. And it’s a move worth considering when you’re not confident in your ability to hand-pick stocks.
Investing could be your ticket to growing a lot of wealth. But know that you can get started with very little money, it pays to hold stocks in your portfolio as a senior, and you can fall back on ETFs if you don’t have it in you to research stocks extensively.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.
