6 Saving & Investing Myths Debunked

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1. “The stock market is gambling – don’t do it!”

gambling at a casino table

It’s still a common view that the stock market is simply gambling. People that have this view will choose to keep their hard-earned money in a safe, savings account.

True, picking individual stocks is close to gambling. But passive investing via index funds is much more measured. The risk is still there, but it’s comparatively much lower.

Crucially with this myth, what most people don’t realize is that they are likely already ‘gambling on the stock market’ via their retirement accounts.

The vast majority of American citizens do not understand the stock market, or indeed anything about the investing world. Yet their whole future – including having a dignified retirement – is dependent on the stock market.

Is this not reason enough for people to take the time to learn about investing?

It seems we care enough to look after our savings, but for some reason we choose to selectively ignore our 401(k)’s or similar retirement plans, which might hold a larger share of our wealth.

If you’re of working age, it’s slowly becoming mandatory all around the world to have a retirement plan. The US government is doing everything they can to encourage automatic enrollment into retirement plans. In the UK, there is a statutory minimum pension contribution for all workers.

These plans are designed to be invested, to compound, and grow exponentially over time. The government or your employer is kindly doing this on your behalf.

But often, the default plan/fund is not the best option. It might be too conservative to get the growth you really need. That’s why taking an interest in your retirement accounts is critical.

It is YOUR hard-earned money. Don’t let all those years of work go to waste just because you couldn’t take the time to learn about investing!

2. “Saving builds money for the future”

saving into a piggy bank

Perhaps the biggest myth when it comes to saving, is that saving is making you richer.

Unfortunately, due to the eroding power of inflation, the buying power of the money in your savings account is decreasing every year.

Let’s say you have $1,000 and are lucky enough to have a savings account which gives you 3% interest for the next 10 years. This would give you $1,343.92 after 10 years.

However, inflation averages at 6% for the next 10 years, too (it is currently closer to 10%!). This means that, despite your money growing by $343.92, the amount you can buy with that money has decreased.

Today, a return ticket around the world might cost you $1,000 (affordable with your savings). But in 10 years, due to 6% inflation, that same ticket now costs you $1,790.85. The plane ticket is no longer affordable to you. Despite the diligent saving you have been doing for the last decade, you only have $1,343.92. Your money has grown, but you are poorer in real terms.

You might be mitigating inflation slightly by using saving accounts, but it’s still a net-loss.

3. “You should invest your money, saving is pointless”

hand holding dollar bills that are on fire

Now, contrary to the last point, that doesn’t mean you should avoid savings accounts altogether.

When it comes to investing and saving, it is not about choosing one or the other.

A healthy financial plan incorporates both investment accounts and savings accounts. There are two reasons to use a savings account over an investment account.

  1. Short-term goals. This might be a housing deposit, a wedding, or saving for a new car. The stock market is too turbulent for you to use it for any purchase that will happen in less than 5 years.
  2. Your emergency fund. You should aim to have at least 3 months of funds in a savings account, or even your checking account, in case of emergency. The stock market is also too illiquid for you to store money that you might need urgently.

We mentioned that the savings account does little to mitigate inflation (though it does offset the effect partially). But whilst inflation erodes wealth, a 50% drop in the stock market can put a stomach-churning dent in your savings, especially if it happens just as you need the money.

Investing should only be done if your investment horizon is greater than 5 years. If it is not, stick to savings accounts.

4. “Start investing right now!”

When people decide to start looking after their financial future, they want to do it all. When they hear about the beauty of compounding, and how rich it can make you if you start investing early, it’s tempting them to dive right in.

Let’s make a budget, pay off debt, save and invest – and start it all right now!

But before you can take a leap into the investing world, you must take control of your debt problem.

Debt is a bigger priority than investing, simply because you can lose more money each month from debt than you can hope to gain from investing.

Paying off debt gives you a ‘guaranteed’ return. If the interest rate on your debt is 15%, paying off that debt saves you 15% of the outstanding balance each month. That’s likely more than you can hope to earn from investing in the stock market, given historical average returns.

Fix your debt problem, ensure you’re on sound financial footing, then start building for the future.

Important note: we recommend having an emergency savings pot of around $1,000, even if you’re in debt. This is your safety net to stop things getting even worse.

5. “I’ll never be rich or in control of my finances.”

stressed crying woman holding dollar bills

You, dear reader, are likely better than 99% of Americans. Just by reading this post, it shows you’re at least paying attention.

Yes, the bar is that low. If you have just some basic awareness of your financial situation, if you care enough to read this post, you’re likely 1 in 100. Allow me to demonstrate:

If you can take control of your debt problem, your retirement accounts, and start investing, you truly can be rich. Just a small amount of time investment can put you on the right track to a wealthy retirement. You can start with our personal finance flow chart.

6. “Investing is too confusing”

confused man on phone investing sat at a laptop

Many people think investing is a huge time commitment, with lots to learn and lots of on-going maintenance.

True, the investing world has historically been extremely inaccessible. But financial innovations such as the index fund, as well as the advent of the internet, have given us access to much simpler products and a wealth of information respectively.

We are not taught how to properly handle money or invest our money in school. The truth is, we need to take some time to educate ourselves.

The good news is you can educate yourself on investing in 10 minutes with our beginners guide to passive investing and be vastly ahead of the majority of the country.

Not just that, but by following our guide you can beat 80% of active investment managers. Yes – the people whose job it is to invest!

So, there really is no excuse not to start. Even if it is just a small amount, it can grow to much more if you give it time.

Start today if you can!

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Hi, I’m James Beckett.
Author & financial coach.

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