Investment is simply the act of placing money into a vehicle with the expectation of making more money. However, investing is a science. There is some homework to be done and investing is not merely as simple as picking numbers for the lottery or betting on your favorite sports team. There are many myths and misconceptions involving this. Here are some of them.
Savings Accounts are Safe Investments – Savings accounts are usually a losing proposition. Sure your money is safe from thieves and the elements but the rate of interest offered to you is usually less than the rate of inflation. Slowly but surely, you would be ending up with a more money numerically speaking but less money in terms of actual value.
A House is an Asset – Having your own house is nice and may be considered by many as their biggest investment. If that is so, then you are in trouble. What you may not realize is that houses cost a significant amount of money. You have to pay property taxes, maintenance costs, insurance costs, as well as utilities such as water, gas and electricity. The house only becomes an asset when you start renting it out whether it be the whole house or a portion of it.
A Car is an Asset – In a similar way, cars are convenient but not exactly assets unless you use them as part of your business such as for deliveries or you rent them out such as a car rental or a cab. As the famous personal finance Robert Kiyosaki put it, assets are things that put money in your pocket and liabilities take money away from the pocket. Cars take money out of your pocket via car insurance, licenses and fees, toll road payments, maintenance, repair and fuel costs.
Mutual Funds are Safe Investments – Well in theory mutual funds seem like a good idea. You pool your money along with other investors which gives you access to an assortment of stocks, bonds and securities which you would otherwise have no access to. It would also even have professional fund managers who take care of the investment part for you. Sounds like a perfect investment doesn’t it? However, do not forget that mutual funds are subject to the highs and lows of the market. Also, fund managers could also make errors in assessing which instrument to invest it. What if the market was down when you went to cash in for your retirement? Then you’re in trouble.
Buy stocks that are Going Up and Sell those Going Down – Sounds logical. However, a lot of people who made good money purchasing stocks that tanked and waited for them to go back up again. They did not buy stocks that have been over valued or stocks that everyone knows is going up and is buying. Likewise, these smart traders did not sell off their stocks at a loss when the market was tanking.