I used to think investing in the stock market was a complicated business, but when I learned about it around 30 years ago, I was surprised how straightforward investing in shares can be. And it can be a lot easier once you get past a whole load of investing myths that have built up.
It takes hard work
You have to spend hours poring over price charts and company news, and keep abreast of every snippet of information that might affect your investments? It’s a common belief, but it’s false.
I have a friend whose strategy used to involve updating statistics every day, comparing the resulting chart lines, and buying or selling when the lines crossed. One time, when we went on a trip together and fearing he’d miss a key signal, he sold everything before he left with a view to reinvesting when he got back. He actually did well from that approach, but it’s not for me.
My investments were (and still are) in top quality dividend-paying companies, which I buy and pretty much forget. If you put a chunk of money into a FTSE 100 index tracker, or spread it across a handful of the best FTSE 100 dividend shares (in different sectors), I reckon that gives you a strategy that requires little or no research, with no need to be glued to financial stats.
You can’t beat the market
This one irritates me disproportionately, because of two things. One, yes you can. And two, you don’t need to anyway.
There’s an idea that, because all information is available to everyone simultaneously, you can’t get ahead. But that assumes everyone acts equally rationally and everyone draws the same conclusions from each new piece of news — and both of those are obviously false. I’d even say that those who pay too much attention to short-term information (which I’d say is most of the investing industry) are more likely to trade too frequently and accrue unnecessary charges, meaning you could beat them just through buying good shares and holding them for the long term.
And, as the UK stock market has provided better returns than all other forms of investment for more than a century now, you simply don’t need to beat it — you just need to be in it.
You need high-flyers
I’m often approached by people thinking of investing in shares, and more often than not, they start by asking what I think the next high-flyers will be and how I go about finding them. When I answer that I have no idea and I don’t even look for them, I’m often met with bewilderment.
You see, many people think it’s like going to the bookies and trying to pick the day’s winners — and just don’t realise that by investing in a diversified portfolio of steady companies, everyone can be a winner.
As an example, around a quarter of the companies in the FTSE 100 are currently on forecast dividend yields of 6% or better. So if you spread your investment cash across a selection of those top payers covering different sectors (for diversification safety), you can just sit back and collect your big dividends every year and see any share price gains as a bonus.
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Views expressed 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.