Investment myths that you should ignore
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The world of investment is shrouded with jargons and complex process. Hence, it is becomes hard for individual investors to understand what is right and what it is not.
In this article, we try to debunk some of the common myths in the investing world.
There is common and prevailing myth that you need a lot of money to start investing and make money. It is far from the truth. You can invest as little as Rs.100 per month. All you need is to invest early and be a disciplined investor. The magic of compounding can be felt in the long term. As and when your income grows, you can step up your investments and build a bigger corpus.
Here’s an example.
Let us assume that Person A invested Rs.15,000 for 15 years and Person B invested Rs.25,000 for 10 years.
| Years invested | 15 | 10 |
| Rate of return | 12% | 12% |
| Amt. invested | 15,000 | 25,000 |
| Total amount | Rs. 82,103.49 | Rs. 77,646.21 |
Here we see that even after investing more money than Person A, the investment kitty of the Person B was nearly Rs.5,000 less than Person A. It is because Person A stayed invested for five more years. Give it time and you will surely see the green shoots of growth.
Gold is considered as an safe haven investment as the gold prices and the stock market move in an opposite ways. However, gold jewellery is not a good investment option. It is because when we are buying jewellery, you are also giving making charges over and above the gold price. But when you go to sell gold jewellery, you will be shocked as the company or your jeweller will not include the making charges. The resell value of the gold jewellery will be at least 25% less than the buying price. Jewellery with sophisticated design and detailing come with higher making charges. Hence, buying gold in the form of jewellery as a hedge instrument may not be the wisest decision. If you want to invest in gold as a form of investment, gold coins, gold mutual funds, gold ETFs, gold sovereign bonds are some of the best ways to invest in gold.
Buying a piece of property was a priority for our parents and grandparents as they worked in one city and most likely worked in one office for rest of their lives. Also, property is not just a piece of land, it is an emotional reservoir. And this may come in between our dreams. Times are changing. Job life has become fluid and there is no guarantee that you will be in one city for the rest of the career especially in the first few years of your career. Property prices in metro cities are steep and buying a property during the initial days can adversely weigh on your financial life. Instead of buying property at a young age, invest in a high yielding instrument like equities or safe a proportion towards buying a house. Later you can buy a house without taking a home loan and thus saving a lot on EMIs.
Stocks are inherently volatile. They tend to go through ups and downs based on market emotions. Many individuals have burnt their fingers in this process. Many a times, it is because they could not stay disciplined and swayed according to the market volatility. Hence, buying a stock may seem like a gamble. But stock picking is not just a lottery draw but it should be only picked after it manages to pass through various filters. There are systems and process that helps one to pick up the right stock.
Past performance indicates future returns: Looking at the past returns to gauge the future returns is just like driving a car with your eyes fixed on the rear view mirror. Although past returns help us to have an opinion about the funds, but relying solely on past performances may not be the right thing. To ascertain the future returns, it is important to be forward looking. Future plans, state of economy, competition, earnings potential are some of the key metrics that one should look.
Every investment asset comes with an underlying asset. It is important to keep in mind that the risk of the asset class is in lines with their risk tolerance. There is a popular misconception that an instrument with higher risks will give higher returns. As risk and returns are directly correlated with each other, a high risk instrument has the potential to give high returns. These high risk instruments tend to volatile in the short term and hence it is only recommended if the investor has long term view. In the long run, these instruments beat inflation and give higher returns than traditional deposits.
These were some of the common myths in the investing world. Steer clear of these misconceptions and invest wisely.
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