Let’s face it: Lots of bad financial advice floats around out there. When financial advice myths take hold, people spread them like gospel — and often find themselves in trouble because of it.
My long history in the finance industry, as a trader and teacher, has taught me to spot and dispel these financial advice myths. When I share money management tips, I make sure they’re accurate and can help people grow their wealth.
To keep you on the right track, let’s look at 11 of the most common financial advice myths so you can avoid them.
1. All Traders Lose Money
It’s true that lots of traders lose money in the stock market, but it’s not true that all traders lose money. If that were the case, people would pull all of their cash out of the stock market and find other ways to generate wealth.
If you’re uninformed, or if you follow bad stock picks, you might lose money. Even if you’ve done your research and spotted a reliable pattern, you can still lose money. That’s the nature of the game.
However, if you’re smart about your investments and learn from your mistakes, the gains will far outweigh your losses. Traders only lose money consistently when they’re not able to execute smart plays.
Financial advice myths like this one get started by disgruntled traders who give up and rant about their losses to others. Just because your friend lost money doesn’t mean you will.
2. You Should Let Someone Else Handle Your Investments
Full-service brokers will feed you this line at every opportunity, but it’s dangerous. Brokers only want to manage your investment portfolio because they make more money that way. It takes control out of your hands and puts it in theirs.
Remember, it’s your money. This financial advice myth takes you out of the equation and requires you to rely on a stranger to make wise investment choices.
You’re better off executing trades yourself based on expert advice and your own research. Money Map Report helps you identify the best trades and avoid getting scammed by organizations and institutions that just want to take your money.
3. Profits Only Come From Huge Companies
I hear this one all the time, and I would laugh if it weren’t so disheartening. If you believe you have to invest in Apple or Google or Berkshire Hathaway to make money, you’re missing out on tons of profits.
One of the most important money management tips I can give is to diversify. Look for smaller companies — even microcap stocks — that will allow you to take small or medium-sized gains. If you get a big enough position in a low-priced stock, you can easily generate a large return on investment as long as you structure the play correctly.
Bigger companies might seem “safer,” but they’re not the fastest or best way to grow your wealth. Investing in short-term stocks with lower volume and price points can help you generate more income.
4. You Get What You Pay For
There’s some truth to this old adage, but it’s one of the most insidious financial advice myths I’ve come across. This is mostly because people follow it too religiously or ignore it entirely.
Businesses often reduce their prices on products or services to make them more affordable to their target audiences. They also run promotions, such as special discounts for limited time periods. If you see a discounted product or service, you can’t assume it lacks value.
Making smart buying decisions boils down to studying the market for whatever you want to buy. How do competitors’ prices compare? How much can you trust the business or purveyor? Answer those questions rather than making decisions on price alone.
5. Real Estate Is the Best Investment
I’m not denying that people have made millions of dollars in the real estate market. However, it’s not necessarily the best investment choice, especially if you’re new to investing.
For one thing, there’s a lot of work involved. As long as I have a device with an internet connection, I can trade stocks and other securities, but if I invest in real estate, I have to maintain the homes, fix them up, find tenants, deal with landlord-tenant disputes, and more.
Furthermore, it’s a lot easier to exit a trade that moves against your position than to sell a house in a market where nobody wants to buy. It’s important to have an exit strategy for any investment, and financial advice myths often neglect that part of the story.
6. You’re Too Young to Worry About Retirement
If you can start saving for retirement at 16, do so. You’re never too young to worry about your future and to prepare for your financial security late in life.
This doesn’t mean you can’t adjust your investment strategy for your age. When you’re young, you can afford a higher risk tolerance because you have time to make up for minor losses. However, you must always focus on building your nest egg so you have retirement savings as well as savings for living expenses.
7. You Should Carry Credit Card Balances
Of all the financial advice myths, this one confuses me most. When you carry credit card balances, you pay interest on your purchases. The total amount you pay can wind up double or more what you actually spent.
Credit card balances don’t help improve your credit score. In fact, they can discourage lenders from extending credit to you.
Why? Because balances increase your total credit used.
Let’s say that you have a credit card with a balance of $10,000. You’re carrying a balance of $2,000, which means you have $8,000 available. If a lender sees that balance, he’ll wonder why it exists. However, if you have a $0 balance, it shows you know how to manage credit wisely.
8. There’s a One-Size-Fits-All Retirement Strategy
Some people like long-term buy-and-hold strategies for their retirement accounts, while others like to trade every day based on fluctuating market conditions. It’s a financial advice myth that you need to follow some sort of protocol to save for retirement.
The same goes for age, as I mentioned above. Just because you’re young doesn’t mean you have to have a high-risk tolerance. If you’re not comfortable with potentially risky investments, avoid them. There’s nothing wrong with that.
9. You Have to Be Rich to Invest in the Stock Market
In most cases, you don’t need more than $500 to invest in the stock market. In fact, some brokers allow you to open a trading account with no minimum deposit, though you’ll have to fund the account before you can trade.
There’s no reason you can’t begin investing in the stock market now. Even if you’re only putting a few hundred or a few thousand dollars toward your investments, you’ll grow your trading account balance by executing profitable plays.
10. Buying Stock is the Only Way to Invest
This is another pervasive financial advice myth. Some people claim that buying stock and selling it later for a profit is the only way you can make money from the stock market. It isn’t true, though.
Many other strategies exist, from shorting stocks and trading options to buying futures contracts and taking advantage of arbitrage. If you don’t explore these strategies, you won’t know if you like them or not.
Similarly, how long you hold a stock can impact profitability. Day traders have different strategies from swing traders, for instance, because they pay attention to different variables. One of the best money management tips I can offer is to try new things.
11. You Can’t Save Money Because of Low Income
Many low-income families find ways to set aside money, whether it’s to invest in the stock market or to build a healthy nest egg. If you’ve fallen victim to this financial advice myth, you might assume that you need to start with a big balance. You don’t.
Imagine if you put $10 into a savings or trading account every week. After one year, you’d have $520. After 10 years, you’d have more than $50,000.
Even small drops in the bucket can help your bottom line. If you choose to invest that money, you can grow it even faster.
Financial Advice Myths: Conclusion
When it comes to money management tips, you can’t listen to everyone — or even the majority, in some cases. Instead, do the research for yourself.
Following financial advice myths will hold you back from growing your wealth and achieving your dreams. In some cases, you can even lose money in the long run.
Think of it in terms of opportunity cost. If you have the opportunity to do something that could help you improve your finances, but you don’t take it, you’ve potentially talked yourself out of income.
To learn more about the stock market and money management tips, check out the Money Map Report. It’s the ideal publication for people who want to know how to take advantage of every possible opportunity.