There’s so much unregulated information about investing out there that it’s sometimes hard to distinguish the facts from the fiction.
Here, I take a look at some common investing myths and try to unpick the truth from the lies. If you’ve heard them before and wondered whether they were true, then you’re certainly not alone!
Myth 1: investing in shares is like gambling
Now, this is one of the most frustrating investing myths. I’ve heard many people talk about investing being like gambling. They say that buying shares is a bit like betting money on the horses.
But it’s simply a myth! Yes, there is a lot of risk in investing. It’s possible for some companies to go out of business and potential for shares to lose their value. But that doesn’t mean it’s like gambling.
The reason investing is not at all like gambling is because, as a shareholder, you’re actually buying an asset. Buying a share means you’re buying a small part of a company, so you can benefit from the growth of that company in the future. As a shareholder, you’ll own a tiny part of a business like Tesco, Shell or Greggs. And you’ll hopefully receive dividend income when the companies pay out part of their profits to shareholders.
Investing is more like buying a rental property and hoping that it will go up in value. Your dividend income is like the rent you’d receive and the growth in share price is like the value of you’re property increasing. And nobody would ever say investing in property is a gamble.
Myth 2: you’ll get rich quick from investing
At the other end of the spectrum, there’s a common myth that it’s easy to get rich quickly from investing. Some social media stars give the impression that making money is easy and you’ll soon be earning six figures from your dividend income alone.
Again, it’s a big myth. It actually takes a long time to build up wealth from investing. But that doesn’t mean it’s not worth doing! If you invest £500 per month for 40 years and your investment growth averages 4%, your pot will be worth £590,980 by the time you retire.
Myth 3: it’s not worth investing in a pension
Again, I’ve heard this myth so many times. Many people think that it’s not worth starting a pension. They say that they’re better off investing in property or downsizing when they’re older.
But the figures don’t lie! Due to auto-enrolment rules, investing in a workplace pension means you’ll immediate double your investment. Yes, you did hear that right, you will immediately double your investment!
If you invest £80 in your workplace pension, you’ll receive an extra £20 in tax relief and a further £60 boost from your employer’s contributions. That means if you don’t open a workplace pension, you’re basically throwing away free money.
If you earn £30,000 per year and contribute 5% to your workplace pension, it will only cost you £1,500 per year to add £3,000 to your pension pot. If you contribute for 40 years and your investment growth averages 4%, your pot will be worth £290,112 by the time you retire. If the stock market does slightly better and you average 6% returns, your pot will be worth £484,329. That’s not a bad return on your investment.
Investing can be rewarding, but it’s a long journey with many ups and downs. Starting young and putting money aside regularly in a workplace pension is one of the best ways to build up retirement income.
Don’t forget that you can still invest up to £20,000 in a stocks and shares ISA before the end of the tax year.
If you’re considering opening an ISA before the end of the tax year, then take a look at our list of top-rated stocks and shares ISAs.