When I first started investing, I was scared of it for one big reason: I knew virtually nothing. I'll admit it, there was a time in my life when I barely knew the difference between a stock and a bond, let alone how to research companies.
But the more I've read and learned, the more confident an investor I've become. At the same time, I've also figured out how to ignore the many myths that tend to circulate about investing. Here are a few I suggest you steer clear of if your goal is to eventually become very, very wealthy.
1. You can only invest if you have a lot of money
Your first financial goal should be to build an emergency fund with enough money to cover three to six months of essential expenses. But once that's done with, there's no reason not to start investing, even if you only have a few hundred dollars to start out with.
If your goal is to be a millionaire, giving yourself a lengthy investing window could get you there. The sooner you invest money, the sooner your portfolio will begin to generate returns — returns you can then reinvest to kick-start a healthy wealth-building cycle.
Furthermore, these days, thanks to fractional shares, being on a budget doesn't even have to mean writing off expensive stocks you'd like to own a piece of. With fractional shares, you can invest in a portion of a share of stock if a full share is out of reach financially. Fractional shares could help you assemble a nice, diverse portfolio. And in time, as your income grows, you can graduate to full shares of the pricier companies on your wish list.
2. You need to sink a lot of time into building a portfolio
I'm a firm believer in researching investments before diving in. But you might not have the time or patience to go that route. And the good news is you don't actually need it.
Buying S&P 500 index funds or exchange-traded funds is a viable alternative to hand-picking stocks. These funds really require little research, because what they're aiming to do is match the performance of the S&P 500 index itself, which comprises the 500 largest publicly traded companies.
Of course you'll want to compare different funds to see what their fees and returns look like. But you won't have to spend nearly the same amount of time as you would digging into, say, 15 different stocks to add to your personal mix.
3. Stocks are the only investment worth making
I happen to be a big fan of owning stocks, and my portfolio is filled with them. But if you limit yourself to stocks only, you might hurt your chances to become wealthy.
An ideal investment portfolio is one that's as diverse as possible — and this doesn't just mean buying stocks from different market segments. It also means owning different types of assets.
In addition to stocks, I'm a big fan of REITs, or real estate investment trusts. REITs trade like stocks, only they don't necessarily follow the broad stock market's pattern. That means if there's a period when stock values are down, REITs don't necessarily follow suit.
Also, while I don't happen to own any income properties right now, I firmly believe that physical real estate is a great wealth-building tool. If you put money into an investment property, the rent you collect could make for quite a substantial income stream, and once you're done covering the costs of owning that property, you can invest the rest of your proceeds for added growth.
Finally, we should talk about bonds as a viable investment. Bonds tend to get a bad rap outside of the context of retirement investing, but in reality, there may be a place for them in your portfolio. Municipal bonds, for example, offer steady interest payments that are always exempt from federal taxes, and they could, in conjunction with other investments, help create a nice, balanced portfolio.
Arm yourself with knowledge
There's a lot of misinformation about investing out there, and knowing what myths to avoid could help bring you closer to achieving your goals. Now, the truth is that if you really want to become a millionaire, you'll need to save and invest consistently throughout your life. But if you commit to doing so and go in armed with the right knowledge, you can put yourself in a solid position to wind up wealthy beyond your wildest dreams.
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