The biggest investing myths debunked

Don’t fall for these widely believed myths that keep thousands of people from investing in stocks and shares.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve been writing for The Motley Fool for almost 20 years now, and helping people understand the stock market and make the most of their investing potential has become something of a passion of  mine. But, although the investing world has been opened up enormously from the days when it was the preserve of classic City types, I’m surprised how a lot of hoary old myths still persist.

Only for the wealthy

The stock market is only for people with a lot of money to invest? That might have been true when it was a closed market and you could only get in if you had an expensive stockbroker, but it’s entirely false today.

The opening up of the market coupled with the advance of the internet has brought charges down to almost silly cheap levels these days. I use an internet-based execution-only broker, and it costs me a fixed £11.95 to buy or sell (and there’s a 0.5% stamp duty tax added to buys). In fact, I’ve just sold some shares today for £1,350, and the charge amounts to just 0.9% — and had I sold twice as many, it would be just 0.45%.

There are even cheaper brokers out there, sometimes with a bit less flexibility. But the bottom line is that charges are low enough these days to make just a few hundred pounds a realistic sum to invest in shares.

Very risky

I was speaking to a financial adviser recently, and when I told them I invested in shares, the response was “Ooh, you like risk“. If even financial advisers think that way, it’s hardly surprising that many other people do. And in one way, they’re right — but only when you think of relatively short-term investments.

If your investing horizon is less that 10 years, or with money you might need in the next few years, I agree it’s risky. Share price charts over a five-year period are often full of big ups and downs, and you can lose a chunk of your money over the short term.

But if you invest for at least a decade, and ideally longer, you’ll greatly reduce the risk. Examine long-term charts, and you’ll see the ups and downs looking a lot smoother.

Diversifying can lower the risk too, and spreading your cash across, say, five to 10 different stocks in different sectors can make for a much safer outlook.

Only for the super-smart

Investing is fiendishly complicated and you need a super-bright brain to do well, don’t you? While investing professionals might like that to be true, it simply isn’t. Let me suggest a strategy to disprove it.

Invest your money in a FTSE 100 index tracker fund.

There, I bet that didn’t make your brain hurt one bit, did it? You’ll bag returns in line with the FTSE 100 index (minus annual management charges, which are typically less than 1% per year for index trackers). Studies by Barclays suggest you’re likely to earn around 4.9% per year above inflation averaged over the long term.

It might surprise you to learn that the majority of the clever clogs running managed funds fail to beat that, and from there you can branch out to seek even better returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »