Top Ten Investing Myths — Debunked

Myths and misinformation about investing are everywhere. In this article, we debunk some of the most common assumptions that negatively impact investment outcomes. Learn how to recognize these common myths to avoid investing based on flawed (even if popular) information.

    1. I don't have enough money to invest.

    Any amount of money is enough to start investing. Regularly contributing even small amounts can accumulate into a large nest egg over time (thanks to compound growth).

    2. This is a no risk investment opportunity.

    No investment products are entirely without risk, but certain investments have less associated risk. Investors often overlook the role of risk in their investments. Understanding how risk affects returns helps investors avoid scams that promise the impossible—high returns without risk. Before considering what products to invest in, take our Investor Questionnaire to access your risk profile.

    3. Diversification is not for my level of investing.

    Diversification is just an investment strategy that limits the risks inherent in any one stock or asset. By holding diverse asset classes, across different sectors and geographies, investors reduce unnecessary risk and balance natural fluctuations in the market avoiding losses. Connect with a registered advisor to learn more about building a balanced investment portfolio.

    4. You can time the market.

    Many investors believe they can “time the market"—that means “buying low and selling high.” However, research shows that it is extremely difficult to do this regularly because the movement of stock prices on the stock market is fundamentally unpredictable. Professional traders have specialized training and use sophisticated trading tools such as software, trading platforms and customized algorithms to secure regular returns.

    5. I pick winning stocks. (aka stock picking)

    Some investors overestimate their ability to pick winning stocks. This can lead to excessive trading, higher transaction costs, and ultimately, underperformance when compared to a passive or long-term investment strategy. Professionals are trained with tools, resources and research that helps them pick stocks that suit their clients.

    6. Past performance is a good predictor of future performance.

    Past performance is not the only factor that contributes to the future of a stock or investment. Investors often use historical data about investment returns to inform their decisions, but for pros it is only one piece of data among many that is considered.

    7. Sell during a stock drop (aka panic selling)

    Investors sometimes focus too much on short-term gains and losses. This can lead to impulsive decisions based on market fluctuations and emotion, rather than long-term investment gains. Stock prices move up and down everyday. They can trend up and trend down for longer periods too. This doesn’t necessarily mean investors will experience a loss, but selling at a loss does. If watching your investments makes you overly anxious or reactionary, talk to a registered advisor to understand your investments over time.

    8. FOMO (fear of missing out)

    FOMO exists in the financial and investment industry too. Some investors follow the crowd and popular trends without doing their own research. This herd mentality is especially prevalent on social media. Before jumping on the bandwagon of a hot trend, consider your goals, objectives, and risk profile and then research the investment thoroughly. Scammers also often make use of trends to defraud investors online—so beware!

    9. My research tells one story.

    People often seek out information that confirms their existing beliefs or biases, while ignoring evidence that contradicts them. This isn’t research—it’s confirmation bias! Where investments are concerned, you want to be as informed as possible to ensure your future returns. Bias can lead to poor decision-making with negative financial consequences. When conducting your own research, always consider differing opinions and contrary views that can help balance any unconscious bias you may have about your investment decisions.

    10. Fees aren’t part of gains and losses.

    Investors may underestimate the impact of fees, expenses, and taxes on investment returns. High fees can significantly erode investment gains over time, so it’s important to consider the total cost of investing—including transaction fees for trades.

    At CIRO, we pride ourselves on helping investors make educated, informed decisions. Get informed and start investing.