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Many People Think That Investment Is Risky, But The Fact Is It’s Risky Not To Invest

Many People Think That Investment Is Risky, But The Fact Is It’s Risky Not To Invest

You might think that now is not the right time to invest because you really don’t have a lot of money. However, that’s a common misconception that could jeopardize your financial future.

The best time to invest is when you’re young, because your money will have more time to grow. An early strategy of consistent investment will give you a nest egg later on in life that you can use for major purchases or, better yet, retirement.

Here are some common misconceptions that millennials have about investing.

“The Stock Market Is Too Risky”

You might think that the stock market is just too risky. You were around when the financial markets took a nosedive in 2008 and perhaps even noticed how it affected your own family. You’ve read about the great stock market crash of 1929 and you’re certain that you don’t want to park your money in stocks with an uncertain future.

While there’s no doubt that the stock market crashed decades ago and experienced a bit of a mini-crash in 2008, it’s also proven to be one of the most valuable means of building wealth since its inception. Even if you started investing in stocks in 2005, just a few years before the recession hit, you would still have a return of 72 percent over 10 years. Over the lifespan of its existence – since 1950 – the S&P 500 has enjoyed a return of more than 12,000 percent.

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So while there certainly will be hiccups along the way, the historical trend favors those who invest in stocks.

“OK, I’ll Find the Best Company and Buy Its Stock”

You might be holding back on investing because you want to find a great company with a business model you can fully support.

While there’s certainly nothing wrong with investing in a great company, the last thing you want to do is to park all of your money in that one company. If it goes belly-up, then you could lose your entire investment.

Instead, opt for diversification. Spread your money among various stocks, bonds and mutual funds.

“If you want to manage portfolio volatility” says Tom Biwer, an investment manager at Wells Fargo, “then following that old cliché about not having all your eggs in a single basket is a good idea.”

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“I’ll Just Buy Into Companies That Other People Are Buying”

A go with the flow mindset might work when you’re on a road trip and trying to decide your driving speed. However, that’s not always the best way to invest your money.

If you think you should invest in XYZ Corp. because everybody else thinks it’s great and is investing in it, then you might be buying a stock that is considered overbought. In a nutshell, that means the stock price could come collapsing down at any time. You might end up taking a steep loss.

“My Uncle Gave Me a Great Stock Tip; I’ll Buy Into That Company”

As stock market guru Jim Cramer says: “Tips are for waiters.”

Somebody might be telling you what you think is a hot tip about a company that’s about to be acquired or report stellar earnings. However, if the person giving you this information really knows that and tells you about it, then he or she is committing a crime. It’s called insider trading and it can get you into a lot of trouble with the Securities and Exchange Commission.

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The best advice is to do your own research with publicly available information and purchase stocks accordingly.

“I’m Just Going to Put Cash in a Lockbox and Save That Way”

The problem with stuffing cash in the proverbial mattress is that your money won’t grow. However, what will grow is the cost of products and services that you buy. That’s called inflation.

So if you put cash away in a lockbox, you’re in reality losing money because, thanks to inflation, that money loses its purchasing power over time.

“My Car Is Considered an Asset; It’s An Investment”

While a car purchase may be the biggest purchase you commit to besides your home, the large price tag doesn’t make it an investment. An investment is supposed to make you money. A home is more likely to appreciate over time, while a car depreciates over time. Buying a luxury car for resale value doesn’t make sense because only 1/10 of the top cars for resale value are over the “luxury threshold” of $35,000.

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It’s important to acknowledge that car purchases are not investments. So remember to research all your options carefully to see how well your vehicle model and make resell, because you’ll never be able to recoup your initial cost of buying the car in the first place. It’s much better to buy a cheaper car and put your money towards better investments.

“I’m Living Paycheck to Paycheck; I Don’t Have Money to Invest”

This might seem like a valid excuse, but the reality is that you should opt for some lifestyle changes so you can put some money away into a mutual fund.

As noted above, time is your friend when it comes to investing in the stock market. As Marcia Brixey has pointed out, if you start investing $10 per week at 8 percent beginning at age 30, you’ll have just over $99,000 by age 65. However, if you had started 10 years earlier with that same investment strategy, you would have earned more than $228,000 – a difference of more than $129,000.

Once you learn the facts and become more comfortable with investing, you can watch your money grow. Won’t that be a great feeling?

Featured photo credit: http://photopin.com via flickr.com

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Anum Yoon

Writer & Journalist

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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