Money Myths

5 Money Myths About Investing And Money

by KNS Financial on August 31, 2011

In our last article, we talked about 5 money myths about housing and taxes.

That was based on an article posted by Investopedia, which discussed various money myths that can end up being costly.

Today, we will talk about misconceptions surrounding investing and money.

5 Money Myths About Investing And Money

I Don’t Have Enough Money To Start Investing

There are many online brokers that will allow you to start an account with less than $50! That means that there really isn’t much of a barrier left to begin investing.

Of course, you can’t buy a lot of anything with $50, but getting started is usually the hardest part.

If you are saving for retirement or some other goal, starting today – even with small, monthly deposits – can make a huge difference when you need to rely on that money!

Once you get a little momentum, you’ll be motivated to take advantage of both 401k contribution limits and IRA contribution limits. But the key is to start today.

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The Stock Market Is Tanking, So I Should Sell My Investments And Get Out Before Things Get Any Worse

This is one that really bugs me because it shows complete panic and a failure to think rationally. Let’s take a look at how this usually plays out…

People get fearful and panic when stock prices fall. That causes them to sell at or near the lowest possible point. Then when the market starts to recover and prices rise quickly, they jump back in and buy at a very high price – the price is usually pumped up by irrational exuberance, and will drop to a more reasonable level shortly.

So, what usually happens is that they buy at a high price and then sell at a low price. In order to be successful at investing, we need to be disciplined enough to do the opposite. That means that we can’t just follow the crowd during times of panic or excess excitement. We need to embrace a contrarian strategy!

I’m Young – I Don’t Need To Worry About Saving For Retirement Yet. / I’m Old – It’s Too Late For Me To Start Saving For Retirement

Even though it is now harder for a creditor to garnish Social Security benefits, it would still be wise for you to set up other means of retirement savings now! There are two things that you can take advantage of in your youth – compound interest and time to recover from mistakes. You will need both if you plan to maintain a decent standard of living in retirement.

If you are closer to retirement, then you can still take advantage of catch-up contributions and your employer 401k match. Keep in mind that there is no rule that states that you can’t save for retirement outside of a traditional “retirement” account. You just might not get the same tax breaks, but you can still put money aside for your golden years.

If you are getting a late start with your retirement savings, this may end up being the best retirement plan for you!

You Get What You Pay For

Considering the fact that people end up paying different prices for the same item/service, this idea can’t be completely true. If you follow this line of thinking, you will be stuck paying the highest price for every thing that you buy, or be willing to pay for maintenance and/or replacements often.

This money myth is usually given by those who wish to justify a huge purchase. They claim that being careful with your finances and looking for a bargain, will cause you to buy a cheap product that will need replacing often.

As with anything in life, you can’t just assume something is true just because you hear it often. As you can see, doing so can have a tremendously negative effect on your finances!

Carrying A Balance On My Credit Card Will Improve My Credit Rating

When I first got a credit card, I heard this money myth a lot. Unfortunately, it is still going strong. Many people think that in order for a credit card to have a positive effect on your score, you need to carry a balance each month, and if you pay it off at the end of the month, it will negate that positive effect.

This thought has caused many people who had the money to pay off their credit card at the end of the month, to only pay a portion of it, and having to pay interest on the rest!

When we talked about ways to increase your credit score, we mentioned that your credit card balances play a part in determining your rating. However, the most important things to know about your balance is that you should pay it off each month, and you should keep it under 30% of your available credit.

You can even use your card to cover your living expenses – in order to take advantage of certain credit card benefits – but just be sure to pay it all of at the end of the month! This will have the most positive effect on your credit score.

Reader Questions

  1. How many of these money myths have you believed at some point in the past?
  2. Which ones do you still think may be true?
  3. How do myths that have been proven wrong time and time again, continue to stay popular across generations?

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