Not knowing how to go about it is one of the main reasons why people don’t invest, along with a number of misconceptions about investing. Here are the most common myths and why you shouldn’t believe them:
Investing is only for people with a lot of money
Diversified managed funds make investing easy for smaller amounts. Most funds will accept a low initial deposit (around $1,000), which can be added to by a regular monthly contributions. Even small regular amounts can grow to a significant sum over a few years.
Investing in shares is risky
Providing you have a well diversified portfolio, the key risk you face with shares is the risk of how long you need to remain invested in order to generate a good return. The share market moves in cycles with an upward trend over the long term. A well diversified portfolio held for the long term is unlikely to result in loss of capital.
Investing in bank deposits is safe
All investments carry some aspect of risk, and with bank deposits the biggest risk is that of loss of purchasing power of your money through inflation. If you invest $10,000 on term deposit today for five years, the $10,000 you receive in five years time will not buy the same amount of goods and services that it can buy today.
You should pay off your mortgage before you start investing
Getting rid of your mortgage as quickly as possible is a good idea, but so is getting into the habit of investing through regular contributions to an investment fund. KiwiSaver should be the starting point.
You need to be an expert to be an investor
There are many investment products available that make investing easy. A good financial adviser can recommend something appropriate for you.