Investment Lies That Steal Your Money and Keep You Poor

These days, everyone seems to be talking about investing, but there’s often a lot of misunderstanding and way too many opinions about what it really is and isn’t. It’s time to clear the air and get down to basics.

While some think investing is only for the rich, it is far from the truth. What stops most people, then? There are dozens of different reasons. Still, most of them come down to not having a certain amount of money, not knowing enough, or being scared off by someone’s bad experience. 

Lies like ‘investing is too expensive’ or ‘it’s too risky’ hold many of us back. But are those real, or is it nothing more than an excuse? Today, we’ll figure that out by debunking the most popular myths and discussing some of the best solutions to help you build your wealth.

Source: Unsplash

Investing demystified: Is it for you?

So, what’s investing all about? It’s pretty straightforward: you pick up assets like stocks or property because you think they’ll be worth more later on. Imagine buying a stock for $50 today and making a profit of $5,000 in a decade. Pretty sweet, right?

But what counts as an investment, and what doesn’t? A savings account? Nope, that’s just holding on to your money. Tip: Check this video to learn why you earn nothing with savings accounts. Is life insurance an investment, then? Well, missed again – it is more about protection than anything else. 

The most ‘classic’ investments are things like stocks, bonds, funds, investment trusts, and, of course, real estate. Well, the last one has a little twist to it that can, sometimes, make it a liability (more on that later). 

Let’s dive into each of these investments and see where your money could potentially do its best work.

#1 Stocks: Becoming a shareholder

Buying company stocks is probably one of the first things that come to mind when talking about investing. Becoming a shareholder basically means turning into a partial owner of that business. Your slice of the pie – meaning the shares – can grow in value, leading to potential profits down the line.

Take Tesla as an example: their single share cost less than $30 just three years ago. Today, it’s trading at around $222 (as of November 2023). That’s the kind of growth investors dream about. But here’s the tricky part: how do you pick the right company that will pay off years from now? That’s the million-dollar question, literally. And there is no single answer to it.

Source: Google Finance

#2 Bonds: Earning through debt investment

In addition to stocks, you can invest in bonds. You’re essentially lending out your cash to entities like governments, businesses, and corporations. When you buy a bond, you’re buying a piece of their debt, and, in exchange, they agree to pay you back with interest over time. Bonds take priority in the event of a bankruptcy. For example, if a company bankrupts, bondholders will get paid first and shareholders get paid after. 

#3 Index Funds: Diversifying your portfolio

If neither bonds nor stocks suit you, or you simply want to diversify your portfolio, you can invest in funds. An index fund, like the S&P 500, pools together a bunch of stocks. When you invest in a fund, you don’t get the shares of a single company, but rather small portions of each of the businesses that make up the fund. 

If some stocks lose value, the others could balance everything out. This is a good idea for beginner investors, allowing them to get to know the process better and overcome fear. Besides, Charlie Munger, who was the vice chairman of Berkshire Hathaway, believed index funds are safer than investing in just one company. 

#4 Trusts: Building wealth with REITs

You can also invest in trusts, such as Real Estate Investment Trusts (aka REITs). They let you invest in real estate without you having to buy properties yourself. Plus, since REITs are traded in the stock market, you can buy or sell your shares anytime, providing the flexibility of quick access to your money, which is known as ‘liquidity.’ And while real estate doesn’t have the highest liquidity, REITs are much better from this perspective. Fundrise is a company that offers great options when it comes to REITs.

#5 Real estate: Check your options with properties

Real estate investing is such a big topic that it’s hard to summarize it in a single paragraph. That’s why we have hundreds of videos on that. Still, real estate is one of the most ancient investments. The secret to its popularity is tangibility, usability, and value appreciation over time. 

One crucial rule you should remember, though, is that your house can be an investment only if it generates income. Otherwise, it is nothing more than a liability (even if it appreciates in value) – more on that in this episode

Source: FRED

Savings vs. investing: Where your money grows more

Wondering why you should invest somewhere else instead of simply saving your money? It’s simple: savings give you no return or a minimal return if you use a savings account. Here’s a quick example: set aside $200 monthly for 30 years. Put half in savings at 1% interest and invest the other half at 6%. After 10 years, your returns won’t be much different – $12,620 in savings versus $16,305 in investments. But wait another 20 years and watch the gap widen to $41,958 in savings against a huge $97,798 in investments. That’s the magic of compound interest in action!

Source: Principle

It seems pretty straightforward, right? Before the 2008 crisis hit, more and more US adults were getting into investing. Then, boom – the numbers dropped sharply. But here’s an interesting turn: the number of stock market investors steadily grows year after year. The share of Americans who invest has reached 61%, with baby boomers and Generation X leading the charge at 56.2% and 26.3%, respectively.

Source: Statista

Source: The Money Fool

In turn, investment among millennials is still pretty low at just 2.3%. Why? A lot of times, it’s fear that’s holding them back – there are plenty of myths out there that can scare people off because they just don’t know how investing really works. But here’s the thing: you don’t need to be a financial expert to start. It’s all about stepping past those fears. Let’s talk more about some common investing myths and show you why they’re not as scary as they seem. 

7 investment lies that keep you poor

Lie #1: Age is an investing barrier

Forget the idea that there’s a ‘right’ age to start investing. Young or old, it’s never too late or too early – it’s about when you’re financially ready, your goals, and your willingness to take risks. In the US, the investing journey can begin at 18 with a brokerage account. Starting young is great because you have time on your side to grow your funds and whether the market’s ups and downs.

Here’s an example: you start putting away $12,000 annually at a 6% return from age 25, considering a 2.5% inflation rate, and 10 years later, your friend follows your lead and starts investing twice as much. By the time you’re 67, you could still have significantly more in your investment pot compared to your friend – $1,346,939 versus $948,698. That’s the power of compound interest and getting ahead of inflation. But remember, starting at any age is better than not starting at all.

Lie #2: You need to be a finance guru

There’s a myth that you need a lot of experience or a finance degree to start investing. Is that true? Short answer: no. It’s like when you’re buying a car – you don’t need to be an engineer, but you still do a bit of research, right? The same goes for investing. And guess what? You gain experience by actually doing it. Just thinking about it won’t get you far. 

Instead, you can educate yourself by learning more about the world of finance and the economy. Besides, you can always invest in funds, for example. It is a relatively safer option because they are formed by managers who are already experienced investors and the research and market analysis has already been done for you.

Imagine this: you know nothing about investing, but back in 1980, you invested $1,000 into an S&P 500 index fund. 40 years later, you’d have about $70,000 in your account without following the market every day or being a financial expert. It just takes time.

Lie #3: You need millions to begin

Many people think you need to be ridiculously rich to get into investing. This myth probably comes from all those movies showing investors with flashy lifestyles. But here’s a reality check: you can start investing with as little as $15-35 a month.

Source: SmartAsset

Let’s break it down. Say you start with $500 and invest it at 5% annually. Add in $35 each month for 30 years, and you’re looking at over $31,000. Not a fortune, but remember, it all started with just $35 a month – pretty manageable for most family budgets. 

And if you up your game with a larger initial sum or bigger monthly contributions, that end number could be even more impressive. So, no, you don’t need to be a millionaire to start investing, but investing might just get you there.

Lie #4: You have to deal with debts first

There’s this notion that you should be entirely debt-free before you start investing. While that’s a nice thought, it’s not always realistic. Picture this: the average American is sitting on about $59,580 in debt. Young adults under 30 owe around $24,142, and by the time people reach their 40s and 50s, it balloons to about $105,219. That debt comes from all sorts of places – mortgages, cars, education, etc.

Source:  Insider

Source: Bankrate

Now, if you wait to pay off every penny before investing, you could end up waiting a long time and missing out on some prime investing years. Instead, why not start now? Smart investing could potentially earn you returns that help outpace your debts.

Still, remember that taking on more debt destined for investing isn’t the best solution. Why? Because the market is unpredictable, and if you have to cash out when the market is down, you will end up losing even more money. So, make sure you have your emergency fund before investing.

Lie #5: Gold protects against inflation

Gold’s reputation as an inflation shield is well-known, but it won’t make you invincible. Yes, its reserves are limited, and it can’t be printed like money. As the dollar’s value decreases, gold’s value in ounces often grows. It’s true, the price of gold has generally risen over the last 50 years, shining brightest during economic crises. That’s why some view gold as a safe, conservative bet.

Still, the price of gold isn’t stable in the short run and depends on the global political climate. And while long-term charts show a steady climb, short-term snapshots tell a different story.

Source: Trading Economics 50 years scale

Source: Trading Economics 5 years scale

Let’s say you buy 5 ounces of gold for about $10,000. In 5 years, with an average increase of $400 per ounce, you’d have $11,500.

But what if you took that $10,000, added $50 each month, and invested it with a 5% annual return? In the same 5 years, you’re looking at over $16,000. Do it for 20 years, and that could grow to more than $47,000. So, while gold shines, other investments might shine brighter over time.

Source: SmartAsset

Lie #6: Life insurance is an investment

Thinking of life insurance as an investment? Time to think again. Life insurance is important, yes. Still, it’s not an investment tool but rather a safety net. Here’s why: your monthly insurance payments – let’s say $26 – are for protection, not profit. This money helps your loved ones if something happens to you, but it’s not something you’ll benefit from financially while you’re alive, at least not in the short term. You can withdraw accumulated funds and stop paying for it, but with fees, taxes, and potential penalties, it’s far from the definition of an investment.

On the other hand, if you were to invest that same amount monthly, you’d have the flexibility to stop and start as you please, and your money could keep growing. Life insurance is a smart move for security, but when it comes to growing your wealth, sticking with actual investments like stocks or funds might be a wiser choice.

Lie #7: If you fail, you’ll end up broke

Let’s get one thing straight: investment failures don’t have to lead to empty wallets. Success in investing is all about preparation and strategy. Diversifying your portfolio by investing in multiple asset types with different risk levels can protect you from big losses. If you’re unsure, don’t hesitate to consult a financial expert or learn more about the topic that interests you.

Remember, starting small is also a form of risk management. Every day comes with risks, from job security to car troubles, but with a solid plan, you’re more likely to recover and learn from unsuccessful experiences. So, the real question isn’t whether to invest or not; it’s whether to take action now or let your fears hold you back.

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