Advertising
Advertising

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.

Advertising

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.”

Advertising

“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.

Advertising

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.

Advertising

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

More by this author

Anum Yoon

Writer & Journalist

Taxes: 10 Terms You Should Know If You Want to File By Yourself This Year Weird Laws Around the World That You’ve Never Heard Of Six Unconventional Ways to Become a Homeowner 10 Underrated Netflix Movies And Shows To Binge Watch During The Cold Weather Can Self-Driving Cars Be Ethical?

Trending in Money

1 How Being Smart With Your Money Leads to Financial Success 2 17 Practical Money Skills that Will Set You Up for Early Retirement 3 25 Things to Sell to Make Extra Money Easily 4 How to Pay off Debt Fast Using the Stack Method (A Step-By-Step Guide) 5 30 Fun Things To Do With Your Friends Without Spending Much

Read Next

Advertising
Advertising

Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

Advertising

So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

Advertising

Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

Advertising

You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

Advertising

Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

Read Next