Being into personal finance space, i come across a lot of investment myths on daily basis. Sometimes it is hard to believe that very well educated people blindly trust such investment myths. Investment is an art and no one can teach you the same. Everyone has a different style of investment. The most important point is that you should be comfortable with the investment style. For example, if am not comfortable investing in the stock market then better i should avoid the same rather losing money & regret later.
I do agree that it is not feasible for us to be perfect in the art of investment. We can always take help of the experts. There is nothing wrong in it but the biggest mistake is if we blindly believe/trust the “experts”. They may suggest high risk investment options and as an investor i may or may not be comfortable investing in such options. Normally, the experts piggyback on the well-established investment myths. The reason being, it is easy to convince the potential investor in such cases. We will discuss some of these well-established investment myths in this post.
Last but not the least, you should always remember that it takes a lot of efforts from marketers/brands to establish the investment myths. You should always question these investment myths. The marketers have their own valid reasons to justify the sales pitch. As an investor, you should check the facts and logic behind these investment myths. For example, if someone tells you that you should buy the property at an early age then you should question WHY? The reason being, the logic behind the same might hold true in your case. But maybe for 90% of potential property buyers, it is one of the investment myths.
I am listing down 5 most common investment myths based on my experience. I found these investment myths to be correct in 8 out of 10 cases. The readers may decide on which side of the wall they stand :)
5 Investment Myths That You Should Never Believe
1. You cannot be RICH if you are not investing in STOCK MARKET
Recently, i was studying one of the reports on the stock market. Though it was not a surprise for me that only 12% of the investments in the stock market is from retail investors. It indirectly proves that retail investors are not in a position to give direction to the market thus end up losing the money. In fact, i wrote a post on the same topic, Why Retail Investors Lose Money in the Stock market. Even if we believe that stock investment is for the long term, the average return from the stock market in long-term is not more than 12%. Based on my experience, I can assure you that without losing sleep you can generate similar returns from safer options :).
I agree that if you are comfortable with stock investments they you may consider investing in stocks. I know traders who generate 30% to 40% returns annually. On the other hand, if you don’t understand the market then better to stay away. I can guarantee that you can be RICH without an investment of single penny in Stock Market.
To prove my point, you can make a list of friends, family members or acquaintances whom you consider to be RICH. Though they will never tell you how they became rich :). Please go and ask them a simple question whether you invest in stock market or not? I can bet and give it in writing that 8 out of 10 will answer NO. Therefore, it is one of the investment myths that you cannot be rich without stock investment be it is a mutual fund, SIP or direct equity exposure.
2. Buy Property at Young Age:
In my opinion, it is one of the marketing gimmicks by builders and home loan providers. It is one of the investment myths that can become a deterrent to your career growth. The traditional wisdom says that you buy a property either in your hometown or city where you would like to settle down. You can buy property at a young age say when you are in Govt Job. For example, my parents bought a property at the age of 32 years. They were in Govt job and were 100% sure that they will stay in the same city until retirement.
Now take the example of one of my friend in Bangalore. He also bought a property at the young age of 32 years on home loan. He foregoes some good career opportunities outside Bangalore. The reason being his family doesn’t want to move out of Bangalore. The self-occupied property always brings emotional connect and comfort level to the family.
Lastly, why this point find place in the list of investment myths because if you will not buy a property at a young age you will not miss the bus/lose something. Around 15-20 years back, it made sense to buy property at young age because property was one of the best-performing assets. The annual appreciation was in double digit. In last 3-4 years the property price collapsed by 30% to 40% in the majority of pockets in big cities. Here i am talking about resale or secondary market. The builder’s rate card is like a Mirage and it always depicts all is well. Therefore, there is NO HURRY or URGENCY to buy the property at a young age until unless you have a compelling reason for the same.
3. Ideal Asset Allocation:
During my financial journey, i learned an important lesson that there is NO IDEAL ASSET ALLOCATION as claimed by the financial planners. Ideal asset allocation is one of the overrated investment myths. In my opinion, financial planning of the earlier generations was much more robust and successful compared to our generation. The problems that exist today like economy slowdown, uncertainty, stock market volatility, interest rate movement etc existed earlier also. Today we are struggling to generate double-digit returns whereas for previous generations, it was a cakewalk :).
In my opinion, the reason for so much chaos is information overload. Before the internet stormed our lives, there was no information overdose. The investors used to select asset class expected to perform well in future. Today if i recall discussions in my family 20-25 years back, i realize there was no ideal asset allocation. At one point 100% investment was in the gold but may be after few years, the gold allocation was NIL & my family members bought commercial property. In short, asset allocation was concentrated and dynamic.
Though today the uncertainty is high compared to earlier times. Therefore, you can diversify but to become rich it is critical to identify the asset class expected to do well. Personally, i am betting on GOLD and shared a post, 10 Reasons Why Gold Investment will double in next 2 years. It’s a fact that gold prices have increased 350 times in last 50 years i.e. annual return of 12.42%. Cyclic ups and downs will always be there. You should know when to enter and exit to maximize returns.
4. Retirement Age is 58/60 Years
Now you must be wondering how come retirement age finds a place in investment myths. The reason being, the basic assumption of all the investment decisions is that retirement age is 58 years. Again it is true if you are a govt employee. The private sector employee understands what i am trying to say. Automation and redundancy will kill most of the jobs as i shared in my post, Jobs that are in danger. Therefore, if you are a private sector employee then you need to readjust your investment decisions by realistically assuming retirement age at 40-45 years.
5. Assured Returns
On my post, Sukanya Samriddhi Account (SSA) the most common query is what will be maturity amount if i invest Rs X for N no of years. Every time i have to explain that interest rates are variable therefore there is no guarantee of assured returns. Gone are the days of assured returns. Assured return is the latest entrant to the growing list of investment myths. Unfortunately, still many people are not aware that interest rate on small savings schemes is now variable. The interest rates are declared on a quarterly basis in sync with rates on G-Secs i.e. Government Securities. The quarterly interest rate will be applicable only to investments made in that quarter and will hold until maturity. Therefore, you can get assured returns only on products wherein the interest rate is locked for fixed period say 5 years tax saving fixed deposits.
Words of Wisdom:
Before making any investment decision, it is important to understand the pros and cons of the same. The is one of the key differences between the seasoned and amateur investor. You can also find a lot of misleading information on the web. For example, on many personal finance blogs, i found calculators/posts on maturity amount of SSA. The investor assumes that SSA scheme guarantee assured returns. It is misleading to the investors. Only a right information can help an investor in taking right investment decisions. Happy Investing !!!
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