5 Myths about Investing that deter you from starting

You may have heard in the news how people lose their whole capital in a matter of days or weeks, people going bankrupt because of reckless investments and also from parents or friends saying investing is dangerous and risky.

When you do nothing, there is a risk of losing out opportunities, when you do something, you might risk not achieving what you want, that is life and it also applies to your wealth and health management too.

Below are the 5 myths which deter you to start your investing journey.

You need a huge capital to start

Well, it's true to a certain extent. You definitely need some capital to start but not necessary a huge one to begin with.

Depending on your current income, you can set aside a few hundred dollars or even $100 per month into your investing portfolio. Certain stocks cost less than $1.00 per share and buying 1 lot minimum in SG which is 100 shares is less than $100. Alternatively, there are robo-advisory platforms that allows you to go as low as $50 per month.

The way i do is every 6 months when i had save a portion for investment, i will enter the market to top up more shares into my current portfolio and do research of some companies that is listed and interested into before i make or not make any more purchase. My annual income is just a little over $30,000 and i am doing it so can you!

The keywords is consistency and compounding. Consistent in putting money into your investment and let compounding do its magic.

It is safer to put my money in regular savings account

That is not entirely false, it's better than storing all of it under your bed.

And Singapore inflation rate for the past 10 years from 2009 to 2019 average about 1.794%. That means every year your savings will have less purchase power as previous year, unless these basic savings accounts offer interest rate at least 1.5 times the average inflation rate, you will most likely not able to at least maintain purchase power.

Here are the interest rate that some of the local banks offer.

Here i will show another calculation in the form of excel table, using the 10 years average inflation rate of Singapore at 1.794% and 0.05% bank interest as example to further illustrate.

As you can see from the table above, the true value of your initial deposit of $20,000 decrease steadily in value due to rate of inflation outweigh the interest rate regular savings account gives you.

There are some ways to mitigate this, which is to invest in stock market, bonds etc, anywhere that gives a higher rate than inflation rate. For me, i only put my emergency funds and active funds in regular savings account, the rest i just keep feeding into my investment portfolio.

The market is too volatile

Yes, i agree the market is volatile. Over the many years the market has made a number of people super rich, medium rich, humble rich or other financial goals but there are also many investors who get themselves to bad debt, reckless investing exposing themselves to full blown risk of stock market.

Most importantly, you can definitely make a fortune in stock market, given time. Load yourself with knowledge, undertand on the products you are investing on, once in a while update yourself on the news of the products you invest on and finally consistent investing and be patient.

Just like when a seed grows into small tree, to grown up tree and to bear fruits, this whole process will face bad weather good weather but eventually the tree made it to adulthood and bear fruits. If the tree did not manage to grow and wither, take it as a lesson learnt and move on.

I need to diversify a lot to eliminate risk

You can buy ETFs, index funds or multiple individual stocks and properties but how much you want to diversify depends on the research you had done on the investments you will likely make.

Warren Buffet holds around a few individual stocks that he knew and understand, he even mentioned that he like what he saw in the structure of those companies, like their products and believe in their potential. For example, decades ago, Buffet bought coca-cola shares because he like to drink coke and he also bought shares from MacDonald because he like the foods there.

So the main point is regardless how much you diversify, make sure you do your research first until you like what you see from the companies business structure, their annual reports. Blindly diversifying may also cause unwanted risk, putting all eggs in one or two baskets is also equally risky.

ETFs and index funds will net you a basket of companies, in that basket, some earn, some do not. I do admit it is very tedious to track all the companies in those baskets. What i do is to recognise which industries your country is doing great in or is growing in strength, pick a few like 20 companies across these few industries and do research. After your research then pick a few that you understand and like and invest in them.

There are government bonds and fixed deposits which offers rates slightly above the inflation rate so its is also a good place to park your money. But these investments are low risk but it retains your capital and small gain.

So the ideal diversification will be categorised under:

• High risk

• Medium risk

• Low risk

So you allocate your investment budget according to these 3 categories like you can set 40% of yr budget to medium risk, 45% on low risk and 15% on high risk, etc.

Investing will make people go bankrupt

Investing will not necessary make people bankrupt, it depends on the following points:

• How you allocated your money into investments?

• Where you get the money from to invest?

• Do you act with emotions often?

• Do you literally take investments as a gambling outlet, blindly trying your luck without proper research?

In the few questions i pointed above, it is very important to at least ponder about it so you can gauge your risk level as an investor.

So if you allocated a huge portion of your money in high risk products, you will be exposing yourself to a lot of risk of losing all your capital. The main turning point which can lead to bankruptcy is when you start making bank loans, mortgages of your properties to make investments and eventually not able to pay back, that will legally put you in the risk of bankruptcy.

Very important to find the purpose of investing, the purpose of the investments made and the purpose of why you allocated that amount to each investment.

To end off, Happy investing everyone!