3 Common Myths About Stock Investing (And 3 Easy Ways You Feel More Confident As A Novice Investor)
January 15, 2019
For anyone unfamiliar with the stock market, the idea of investing can sound distressing, intimidating, and confusing at best. There are plenty of reasons you might feel like this, and you’re not alone! According to the NY Times, only ⅓ of millennials aged 22-37 currently hold stock and 80% of those investors describe their investing strategy as conservative. However, with some basic knowledge of the stock market and the economy, you can already get started valuing stocks and investing. Let’s start by defining stock investing in the simplest terms:
Simple Breakdown of Stock Investing
When you invest in the stock market, you’re exchanging your money for a share of a company, which makes you a partial owner. As an owner, you’ll share the financial gains and losses of the company you invest in. The beauty of investing comes from making your money work for you to yield returns, based on market fluctuations and compound interest (we’ll explain that in a minute). By investing in more companies, you can diversify your portfolio to reduce risk and magnify your overall returns.
Why Should I Care About Stock Investing?
Fact is, investing gives you the freedom, power, and experience to make better financial decisions for yourself. The ability to take control of your own financial future is important for anyone, so we want to help you gain a better understanding of how you can do so. In this post, we’ll break down three common reasons why people are hesitant to invest and discuss how you can get started investing comfortably and confidently.
1: “Stock investing is only for finance majors or old people that have a lot of money.”
This is one of the biggest misconceptions about stock investing. As of April 2017, 54% of Americans have their money invested in the market, according to Gallup. Men and women, new grads and seniors, are all recognizing the value of investing and are taking action to control their financial future. In fact, the younger you start investing, the better, because it gives you time to invest for long-term financial gains and accumulate compound interest.
As a simple example, let’s say you invested $100, which on average grows annually by 10%. By letting your money sit in the stock market for one year, your money would now be worth $110, which is a gain of $10. If you keep your investment in the market, your starting total would be $110, on which you would hypothetically make $11 next year. If you started that process when you were 20 years old and continued until you were 60, your yield trajectory would be much higher than if you were 40 years old and continued until you were 60. The power of compound interest, combined with the ability to take greater risk for the long-term, provides a huge advantage for those that start investing as soon as possible.
2: “Finance jargon is confusing – I could never understand that."
At first glance, the jargon used in stock investing does sound difficult to understand and confusing. However, it’s actually just like any other field you might be interested in – similar to how you learned that an audible in football means a change of play when you watched the game every Sunday. In stock investing, an example are those little symbols beside stock picks that look super confusing, but are actually just an abbreviation of the company’s name – more simple than you were expecting, right? All it takes is some basic understanding of and practice using common stock investing terms.
Stock Investing Keywords
Stock = a claim on a company’s assets and earnings based on ownership in a corporation
Stock Symbol = short abbreviations used to reference a company, i.e. Amazon is AMZN
Dividend = distribution of a company’s earnings that are paid its stockholders
Compound Interest = the reinvestment of interest in an investment to earn higher interest in following periods
Yield = measure of the return on an investment based on the dividend payment received
Trade = the buying or selling of financial instruments, i.e. stock in our case
Order = an investor’s bid to buy or sell an amount of stock
Execution = when an order to buy or sell is completed
Bid-ask Spread = difference between the most an investor is willing to spend and what
they actually spent to acquire a stock
Blue Chip Stocks = large, industry-leading companies that are known for their stable, inflated
dividend payments, e.g. Starbucks, Coca Cola…
Bull Market = a general rise in the stock market over a period of time
Bear Market = a general decline in the stock market over a period of time
Here’s a great resource for some more important stock terms to note.
3: “I don’t know anything about the stock market or how to get started investing."
Stock investing has become easier than ever with the rise of online brokerages and mobile app solutions. There are thousands of great ways to learn about stock investing, from online podcasts to finance blogs to youtube videos. To help get you started, here’s three key tips on how to invest more comfortably and confidently:
How to Get Started with Investing
Do your research.
The first (and most important!) step of investing is doing your research. Find out the ins and outs of the stock market, explore companies you want to invest in, and read up on the latest finance news. Not quite sure where to start? Read about some of the best resources to gain financial literacy here.
Learn from others.
Whether it’s observing the work of the most influential figures or taking note from your circle of friends, learning from successful investors is one of the best ways to learn. Follow your favorites on social media (we recommend Warren Buffett and Jim Cramer) and take notes of their nuggets of wisdom and advice.
Start an investment club.
Investment clubs are a great way to invest because they allow you to pool your money with others and make investment decisions together, which makes investing social. If you’re interested in starting an investment club, download the Voleo app for more information!
Interested in learning more about investment clubs? Download the Voleo app and we’ll walk you through the process.
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