There are myths about everything, investing included. No matter how long you’ve been trading securities, you’ve probably heard your share of falsehoods, half-truths, urban legends and misinformation about investing. Everyone wants to make money, and everyone seems to have free advice about how to make it very quickly. Commonly called get rich quick schemes, these pesky fallacies just won’t seem to go away. In fact, some grow and take on a life of their own. One, related to selling shares of stock you don’t own, has become a major category of misinformation all its own. Here, in no particular order, are the most common investment myths.
Savings Accounts Are Wise Investments
Here’s an example of an almost ancient myth. It probably began because it is indeed wise to have a savings account, but not to maintain one as a form of investment. For the purposes of building credit, it’s smart to have both a savings and checking account at your bank. But for holding a significant amount of funds and earning a decent percentage of interest, neither is very good at all. Consider higher-interest choices like certificates of deposit if you want your money to work for you.
Short Selling Stocks Is Illegal, Immoral and/or Dangerous
When you agree to deliver a certain number of stock shares at a specified price on a set date, but you don’t yet own the shares, you have engaged in a short sale of securities. Short selling is neither illegal nor unwise. Many traders effectively earn profits with shorting stocks. Because the approach is counter-intuitive, many people are automatically suspicious. And no, short selling did not cause the Great Depression.
Gold Is Always a Safe Investment
Gold is often a counter investment to the stock market, meaning that its price typically rises when the price of securities falls, as a group. But gold is not a magic or secret form of investing at all. In some time periods, it rises in price and in some periods, it falls, just like your favorite companies’ shares.
Stock Brokers Are a Waste of Money
If you do all your own trading online and use a discount broker, you do save a lot compared to using a traditional human for the same services. But for investors who have large accounts, a human broker is almost a must. Unless you are a highly experienced stock aficionado and have all day, every day to handle your account activity, you need a real live brokerage agent.
You Should Not Have Any Credit Cards
This myth began in the 1980’s when several best-selling books advised consumers against using plastic. Nowadays, the entire world runs on credit and if you don’t have at least one card, your life can be rather difficult. The key thing to remember about cards is that they simply represent your borrowing power. You don’t have to use them unless you want to. So, don’t fear the plastic monster, just remember to pay off balances at the end of each billing cycle.