You must be good at finance
This is the most common misconception people have when they are asked about their investments.
It is same as saying that you must be a real estate or car expert if you are planning to buy a house or car. Investment is like buying an asset and the mechanism remains the same – the way you evaluate any purchase (be it car, house, furniture). Start from the basics and elevate your way up to more complex assets.
Purpose, risk, return, compare to other investment you already have, need based, nature of investment (simple to complex)
When I left corporate job 5 years back and decided to manage own portfolio (again you can select between active and passive management), many around me assumed that I must be good at finance and understand all this jargon and numbers. Ofcourse, I let them assume that. But in reality, I was just applying and evaluating new/existing investment options against pre-defined principles, structure and framework.
Investment means putting money in bank or trading stocks
The meaning of investment is different for different people and that is fair. After all, investment strategy is based on your personal goals, lifestyle, stage etc. However, money lying in your bank account is not an investment. Even if we if ignore the negative interest rate in banks (in some countries like India, Banks do pay 2-3% interest rate), the inflation rate will itself eat up the savings. So, your money is losing its value while lying with the bank.
Similarly, trading stocks is not an investment strategy.
You need to be wealthy and old to invest
Now this is an interesting one… there is a misconception that investment is only for rich and/or for people who have accumulated certain amount of wealth. Whenever I ask a youngster about his/her investment, most of the time I get a standard response – Can only invest when we have some considerable savings. So, let’s build up the savings and then we start investing later.
Our philosophy – start small, start early <link to top 5 benefits of early investing>
Given the easy accessibility of different investment products, both in terms of price (can buy fraction units) and buying options (online platforms/apps), one can start investment even before they earn their first pay check [Yes, that money lying in piggy bank can also be invested!]
You need a financial advisor to manage investments
Always good to have an expert advise you on your investment portfolio mix or strategy but you do not have to depend on a financial guru for every investment decision. This thought process is greatly influenced by the fear factor of losing money if not done through an advisor!
Not taking anything away from all those financial experts but they should be consulted exactly for that – expertise and not for basic investment decisions.
Do your own due diligence of the investment product, get clarification from the product owner (if accessible), run it through your framework/guidelines and rest assured, you will be taking an informed decision which will be tailored to YOUR situation. For complex products or product mix, there is no harm to consult an advisor but as mentioned in our article on Investment mix, such a mix should be a defined percentage of your portfolio and a factor of where you are in your investment journey.
Need lot of time – devote hours every day
Personal investment is not a full-time job. Infact, this could be one of the pitfalls – people over analyse and over managetheir portfolio. What you should definitely spend few hours every week is going through the trends (subscribe to couple of trusted sites/newsletters) relevant to your current and planned investment portfolio. For some assets like property, value does not change much over months and years but for some like equity, it changes on daily basis. This is needed for monitoring and tracking but unless you have to take an action (liquidate or initiate new investment), you should not spend more than couple of hours every week.
Again, what helps here is to spend good amount of time at the start of your investment journey in working out your framework/guiding principles. Then from time to time, based on personal and external factors, you are basically working towards course correction rather than planning/monitoring/managing your investments
My money will get locked – no access in short term
Now this is more about the type of investment than the willingness to invest. There is a general feeling that investment means parking your money in some long-term policy or product to have real benefits and not being able to access this money for short term expenses. This is a valid concern and can be addressed by FI strategy of keeping different funds for different purpose. Again, you do not have to invest everything you have and not all investments are lock-in.
