Myths To Tackle While Investing In Stocks

Even in 2022, only a handful of people invest in the stock market, which is not even 5% of the overall population. This figure is more than double in China and other developing countries. The myths surrounding the stock market can be one of the primary factors for people not taking an interest in investing in stocks. Due to social conditioning and the history of stock market events, most people have different myths about the market. Thus, even if they have excess money to invest, they choose risk-free investment vehicles.

Myths Surrounding Investing In Stocks

1. Equity means risk; sticking to debt instruments is better

While the stock market is constituted of equities as well as debt, most people consider equities to be highly risky compared to debt instruments. Of course, equities have risk factors that are high if compared to debt instruments like bonds. However, the time factor needs to be evaluated here as well. In the short- or medium-term, equity investments may be riskier for companies with weak fundamentals, while companies with strong fundamentals can provide good returns. But in the long run, equity investments are not only less risky but more profitable than any debt instrument. So, equities are not riskier than bonds in every scenario. It is really about which company you are picking and how much time you are willing to put it that will define how much risk you have to bear.

2. Large caps are always better than mid or small caps

This myth needs to be debunked if you want to accumulate wealth and grow your investments. While large caps are undoubtedly good investments for people who want stable returns, dividends, and less volatility, that doesn’t necessarily mean they are better than mid-cap or small-caps, which offer higher returns and growth. What really matters here is the right selection of stocks. If you can identify a small or mid-cap that has the potential to turn into a large-cap, your investment will multiply astronomically. On the other hand, the chances of this happening with large-cap is less likely as they have already reached the peak of growth.

3. Return is more important than the risk in long-term investing

It is crucial to assess any risks associated before anticipating the return in the long-term investment and equity market. Thus, the thought “Return is more important than the risk in long-term investing” doesn’t hold in such a scenario. If you only consider returns, you can lose all your money as businesses can go into loss anytime. So, assessing risk and anticipating returns are vital for investors.

4. Technical Analysis is only for traders

Technical analysis is for all who want to invest/trade/learn about the stock market. Yes, one can say that traders use technical charts and other tools the most as they buy and sell daily. However, while entering the market or exiting the market, even a long-term investor can analyze the charts to understand the point of entry and exit for better returns. There are many such myths about stock investment; but if you want to invest in the market and profit from it, you need to rise above these myths and find the truth.