5 Misconceptions About Investments You Should Know

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September 1, 2016

5 Misconceptions About Investments You Should Know

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There are so many misconceptions we have in our mind about investment or while making an investment. Today we will make you aware more about 5 of the most common misconceptions people have and the truth behind them.

1. Investments are only for Rich people

Most people believe that investment is only for the rich people because they have ample amount of money to invest. But the truth is that no matter what your financial condition is you should be investing some part of the money regularly.

A right investment will always benefit us by preserving our money from inflation or taxes and also multiply it over the time. Poor and middleclass people need this as much as rich people, so investment is something everyone should definitely do.

2. Investing in Stocks is like Gambling

We do believe that investing in stocks can be really risky sometimes. But it is not at all same as Gambling unless you are randomly selecting stocks. You need to do a proper research before investing.

However, Gambling is a zero sum game, where one will win at the expense of the other player. But in stock investing, if you select a company which makes good profit regularly then its win-win situation for all the shareholders.

3. Investing in mutual funds means you have diversified portfolio

As we all know the importance of having diversification in our investment portfolio. Most of us take the mutual fund route and assume that we have a diversified portfolio. As Instead of putting all your money in one stock, a mutual fund helps you to diversify your investment into various companies in a sector of various sectors altogether.

However, the reason of diversification is very different. An investment portfolio which has a good mixture of stocks, bonds, real estate, commodities etc is a truly diversified portfolio.

4. More risk means more return

This is one of the most common and a dangerous misconception people have about investment. Most of the people believe that higher risk equals to higher return, which is absolutely not true.

Risk is inversely related to your knowledge about that investment and the research you have done. You can always minimize the risk by doing a proper research and expanding your knowledge about that particular investment you about to make.

5. Do not invest when market is doing bad

When the market is doing good we see a lot of new investor jumping into the growth story. It looks like if you invest in any stock you will definitely make money. But when the market is doing terrible most of the people believe that it is the worst time to invest.

However in the down market, It is quite easy to find really valuable stocks at a discounted price. World’s greatest value investor Warren Buffett usually follows that same rule.

I hope you are now aware of some of the most common misconceptions about investment and will definitely avoid them when the time comes.

Moiz Choolawala
Moiz Choolawala
Moiz Choolawala is the founder of Plansmart and a SEBI Registered Investment Adviser. An MBA in Finance and Marketing Moiz is an experienced investment adviser and blogs about investments, personal finance, insurance planning and tax planning.

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