Perhaps you\u2019ve heard that the stock market is a casino? Or, it\u2019s a place that\u2019s only accessible to the rich and famous? There are plenty of rumours floating about and we\u2019re going to be explaining and debunking some of the biggest myths. Hopefully giving you a clearer understanding of how stock markets actually work.<\/p>
This refers to widespread nuggets of information and general misconceptions that usually have very little truth to them.<\/p>
Stock market myths tend to be circulating stories that often travel by word of mouth and don\u2019t have much grounding in actual facts.<\/p>
Nevertheless, it\u2019s something worth addressing. Because, these tall tales can lead beginner investors to make mistakes, or sometimes put people off the idea of investing entirely.<\/p>
We\u2019re going to reveal ten of the biggest stock market myths, explain if there\u2019s any truth to them, and clarify what you should know about investing.<\/p>
This is definitely the myth you\u2019ll come across the most. Unlike playing blackjack or roulette, investing in stocks is not a game of chance.<\/p>
Chance and luck can play a role, but the majority of investing comes down to research, skill, and patience.<\/p>
In a casino, the odds are stacked against you. It\u2019s how casinos make money. The stock market isn\u2019t designed to beat you. In fact, quite the opposite is true most of the time.<\/p>
Investing only has to be as complex as you make it.<\/p>
There definitely are complicated strategies and forms of in-depth technical analysis that some investors use.<\/p>
But, if you want to keep things simple, you can invest passively in index funds and ETFs<\/a> (exchange-traded funds<\/a>). <\/p> Or, if you want no part whatsoever in choosing investments<\/a>, you can use a robo-advisor<\/a> to pick all your stocks and manage everything for you.<\/p> This may have been the case in the past when London was run by the gentrified elite. But it\u2019s far from the truth today.<\/p> There are investing platforms you can use that will let you open up an account for free and start investing with as little as \u00a31.<\/p> Sometimes investors get confused when looking at a stock. Thinking that if the share price is low, they are getting a bargain or buying a \u2018cheap\u2019 investment.<\/p> The truth is, the share price only tells a small part of the story. It doesn\u2019t reveal anything about value.<\/p> To calculate the value of a stock, you need to look at its whole finances. This means taking into account how much money the company is making and spending.<\/p> Another popular stock market myth is that you have to buy whole shares of companies.<\/p> Sometimes stocks will have a high price tag. And, buying a full share can be expensive, putting it out of reach for investors with only smaller amounts to invest.<\/p> The reality is, many modern brokerage accounts will now let you buy fractional shares<\/a>. This means buying a portion of a share, making it more affordable to invest and own a piece of the stock.<\/p> Plenty of investors buy into this stock market myth.<\/p> Sometimes even experienced investors make the mistake of thinking that they should buy a stock simply because the share price has fallen. Believing, it\u2019s guaranteed to go back up at some point.<\/p> There are also those who believe the opposite, that if a stock\u2019s price has risen, at some stage it will come back down again.<\/p> The reality is that stocks can continue moving upwards or downwards and never again return to a previous price. The performance of the underlying business can change over time. This can be both positive or negative, and will be reflected in the share price.<\/p> This is a stock market myth that can be particularly gruesome and difficult to wrap your head around.<\/p> In most areas of life, going with your gut and doing what feels best can serve you well. When it comes to investing, one of the best things you can do is avoid acting out of emotion, or making decisions based on instinct.<\/p> Nothing in our evolution has given us the mental tools to be successful investors. It\u2019s usually the people who can ignore these feelings and move in the opposite direction to the crowd that come out on top. Success in the stock market can often be a psychological battle.<\/p> Most investment companies do charge fees<\/a>. And, they are trying to make money themselves. However, legitimate investment platforms are not designed to take all your money or scam you.<\/p> Most brokerages have fees that are based upon a percentage of your holdings. So, the more money you make, the more money it makes.<\/p> It\u2019s really not in a platform\u2019s interest to see you get wiped out of the market, because that means the loss of a customer and less money for them.<\/p> Attempting to beat the stock market shouldn\u2019t be everyone\u2019s goal, but the idea that it can\u2019t be done is definitely a myth.<\/p> The number of investors and funds that regularly outperform the market is quite low.<\/p> But, you don\u2019t necessarily need to beat the market for a great investment return. Take the S&P 500 index<\/a> for example. It\u2019s the major US stock market index, and from 1957 to 2021 has had an annualised average return of roughly 10.5%.<\/p>3. The stock market is for rich people<\/h4>
4. A low share price means a stock is cheap<\/h4>
5. You have to buy whole shares<\/h4>
6. What goes up must come down and vice versa<\/h4>
7. Follow your instincts and emotions<\/h4>
8. Investment companies and brokerages are scams<\/h4>
9. Beating the market is impossible<\/h4>
10. Blue-chip stocks are always a safe bet<\/h4>