Three myths about investing
It wasn’t until several years after earning my first paycheck that I felt comfortable investing my money. When I opened my first investment account, ticker symbols of different mutual funds, ETFs and stocks, Morningstar ratings and analyst rankings swirled into alphabet soup. As I froze in “analysis paralysis,” thousands of dollars in cash languished in my account.
At that time, I could not articulate the reasons behind my indecision, and I was lucky to stumble upon a tool that fully addressed my misconceptions and lowered my mental barriers towards earning passive income. After staring at my flat account balance for months, I decided to put a small amount of money in something called a “robo-advisor.” [click here to learn more about what makes Wasat different from other robo-advisors.] I discovered the service poking around my brokerage firm website, and a few simple questions later, the robo-advisor recommended a specific allocation of ETFs across different asset classes. It promised to use an algorithm to automatically rebalance my portfolio and keep me on track to meet a target annual return. Because I wanted to start conservatively, that return was only around 5%. But I was sick of seeing the same account balance again and again and enticed at the idea of earning even a small amount of money by doing nothing. So, I decided to give it a try.
As I watched my money and repeated the mantra that all decisions are somehow reversible, a jumble of false beliefs continued to linger in my mind, and it wasn't until years later that I fully understood what they were, where they came from, or why they persisted. I’ll start by telling you about the first and most significant misconception I had about investing, and in the coming days, I'll post -- and bust -- a few more.
Myth: Investing is extremely risky.
I was 18 and old enough to remember — if not fully understand — my parents’ sighs and shaking heads as they glued themselves to the television set in 2008, and my friends and I experienced both jitters and impending doom anytime someone asked “What are you doing after graduation?” When I was a child, my great-grandparents always re-told the same stories about eating lard sandwiches during the Great Depression, and despite my efforts to tune it all out, I absorbed a hearty aversion to anything related to the stock market. I didn’t want to become one of those grown-ups getting gray hairs over market movements or hoarding canned food. If I wanted a little adrenaline rush, I’d take jay-walking or rock-climbing or traveling to a new place. Investing? No, thank you!
Reality: Over the long term, the returns on my investment ended up exceeding 5%
While it was slightly nerve-wracking to see my account balance go down during times of market volatility, like in 2020, the market will deliver a positive return if you keep your money invested over the long term. Despite a bear market in 2022, as well as lots of ups and downs in 2020, I've still made money.
Simply-stated, if you invested $100 in the S&P 500 at the beginning of 2020, you would have about $198.55 at the end of 2024 (assuming you reinvested all dividends [insert hyperlink to definition], a service most robo-advisors provide automatically). This is a return on investment of 98.55%, or 15.25% per year. For any of you economics buffs out there, this lump-sum investment also beats inflation during this period for an inflation-adjusted return of about 63.91% cumulatively, or 10.76% per year. Now that is a number that doesn't sound risky to me! The only trick is being able to weather unstable times or market downturns and to resist the urge to withdraw your money. But if you do, your patience will be rewarded.
Long story short, I kept the money in that account, and none of the huge losses, decision paralysis or other miscellaneous reasons for cold feet ever materialized. As I mentioned earlier, the process of investing actually made me confront the three false beliefs that stood between me and making smart, proactive money moves. Before I began investing, I didn't know that there were investment products and platforms that could address my needs and concerns, or that anyone might have similar questions -- or possess financial knowledge that could have benefitted me -- so I let my fears and false beliefs hold me back.
But because Wasat is about empowering individuals to make more confident decisions and to secure their financial futures, we don't want anyone else to risk that their financial freedom and earning potential is left to luck or haphazard moves. We believe that everyone should have a forum and resources to secure their financial future.
So let's start the conversation and try to dispell some of the mystery, mistrust or uncertainty about investing. We hope that topics like this help you feel more comfortable to share your own questions, hesitations or uncertainties around investing, and that collectively, Wasat and our community of investors can help you gain the knowledge and perspective to make the right financial moves for yourself. What are your biggest obstacles and burning questions when it comes to investing? Leave a comment down below.
In the meantime, I’ll post about two more investing misconceptions I had, and we’ll also write a follow-up piece featuring your questions and Wasat’s responses.
