Investments are crucial to growing your wealth. While there is a lot of investment advice available, not all of it may be true. Here are some common investing myths that you need to be aware of before you invest.
1. You need a lot of money to get started: No, because you can start investing with as little as Rs 500 a month in a mutual fund systematic investment plan (SIP). Of course, if you are saving for a certain goal, you would need to save a certain amount every month or at regular periods. But you do not essentially need a lot of money to get started on your investment journey. So, do not wait to get a raise, or save a certain amount of money before you start investing. The idea is to start investing right away.
2. You need to invest at the right time: All of us would ideally like to invest when the markets are at the lowest and sell when they are at the highest. However, even the experts cannot time the markets. Investments can help you grow wealth only if you invest on a regular basis irrespective of the market conditions. The recommended way to invest for retail investors is to invest a certain amount at regular intervals. This helps you buy more units when the markets are down and fewer units when the markets are up and avail the benefits of rupee cost averaging. Even when it comes to investing in stocks, you may not be able to buy the scrip when it is at its lowest, but if you hold it for the long term, your chances of earning handsome returns increase.
3. You need to pick ‘winning’ stocks of MFs to earn good returns: We often read news of someone investing in a multi-bagger stock and earning 10x or higher returns. Or, someone talks about how an MF scheme has given very high returns. However, while you may pick a winner, the investment strategy has to be more balanced, whether it is stocks or MFs. Always invest according to your risk profile and your asset allocation to get suitable returns over a longer time period.
4. You need to follow financial news daily: If you have invested in stocks, it is important to keep track of the stock prices. However, daily changes in stock prices should not influence your decision to hold or sell a stock. If you invest after doing proper research, you would have faith in the long-term prospects of the stock. So, day-to-day market news should not affect your investment decisions. The same holds true for MFs because the initial choice would be based on research of the fund’s investment strategy. So, tracking unit prices daily serves no purpose.
5. Past performance is an indication of future returns: MF advertisements and other literature come with the disclaimer that past performance does not have an implication on future performance. This holds true for any investment. Several factors can decide whether the value of an investment goes up or down, but past performance is never an indication of future returns. While the past returns of a stock or mutual fund are something that needs to be researched, it is not a reason to attract investments.
Being aware of investment myths will help you become a better investor who puts in his or her money based on relevant factors rather than faulty information.