Investing in the stock market can help you make a lot of money, even if you don't have much spare cash to invest. The key, though, is to invest wisely and avoid falling for myths that could hurt your earning potential.
There's no “one size fits all” strategy to investing, but there are several misconceptions that could be costly. These three myths, in particular, may seem harmless on the surface. But they could affect your investing strategy and potentially cost you over time.
Myth No. 1: Investing in the stock market is like gambling
Nobody has control over how the stock market performs, which can make investing feel a lot like gambling. It can be nerve-wracking to invest, then, if buying stocks feels like betting your life savings.
In reality, though, investing is more calculated than gambling. There will always be risk involved, but by choosing your stocks wisely, you can limit that risk as much as possible. The stock market has a long history of earning positive returns over time. As long as you buy stocks that have solid fundamentals and are likely to experience consistent growth over the long term, investing is much safer than it may seem.
Myth No. 2: You'll lose money during market crashes
Stock market crashes can be difficult to stomach for both new and experienced investors alike. Nobody knows when market crashes will occur, how severe they'll be, or how long they'll last. And many of today's investors remember the pain of the Great Recession just over a decade ago and are hesitant to trust the stock market.
The most important thing to remember about the market, though, is that investing is playing the long game. Crashes will happen, and they could cause the value of your investments to plummet in the short term. But given enough time, the market has always recovered.
Over the last few decades, the country has experienced the dot-com bubble burst, the financial crisis of 2008, multiple presidential elections, wars, political and civil unrest, and a global pandemic. However, despite many short-term downturns, the S&P 500 is still up more than 1,000% since 1990.
When — not if — a market crash occurs, the best thing you can do is hold onto your investments. While your savings may take a hit in the short term, the market will eventually recover. As long as you're investing in solid companies, your stocks are very likely to bounce back as well.
Myth No. 3: You need a lot of money to begin investing
Investing in the stock market can seem like something that's reserved for wealthy individuals or financial experts. But even if you only have a few dollars to invest and don't know anything about the stock market, it's possible to get started.
For beginner investors, a great investment option is the exchange-traded fund (ETF). ETFs are collections of stocks bundled together into one investment. You can buy ETFs that track major market indexes (like the S&P 500), or niche sectors (like the technology industry).
Each ETF may include hundreds or thousands of different stocks, and that instant diversification can limit your risk. You also don't need to choose stocks, so there's much less research involved than if you were to buy individual stocks.
Whether you choose to buy ETFs or individual stocks, fractional shares also make it more affordable to buy. Rather than having to shell out hundreds of dollars for a single share of stock, with fractional shares, you can buy a small piece of a share for as little as $1.
Investing in the stock market will always carry some degree of risk, but it's not as dangerous as it may seem. By starting to invest now, you can start building wealth and creating a more financially secure future.
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