Debunking investment myths for beginners

By Maui V. Reyes for Yahoo! Southeast Asia

So you’ve decided to make more money without putting in more hours at work. Congratulations! You’ve finally decided to get into investing—that is, making your money work for you, so you can basically earn income even in your sleep.

But do you need to be a certain age to start investing? Is there such a thing as a “good” or “bad” investment? Is a business degree necessary in making big investments? We debunk some investment myths that beginners might encounter on their quest to making their hard-earned money grow.

Myth 1: Investment is gambling

While it may look like gambling (thanks to movies where stock market brokers are seen screaming at prompters), investing isn’t the same as placing chips on a table and praying for the best outcome.

“Gambling” means putting your money at risk by betting on an uncertain outcome—you want to win, but there’s no assurance you’ll double your bet, or even walk away with some of the chips you put in.

Real investments don’t involve blindly throwing your money to the wind: it’s up to you to analyze your portfolio, and make an investment with a reasonable expectation of profit. While there are some risks involved, it’s not as nail-biting as hoping you win the jackpot or go home penniless.

Myth 2: There’s such a thing as a “bad” investment

According to Shane Conferido, Assistant Manager at the Bank of the Philippine Islands, there’s no such thing as a “good or bad” investment. That’s because the investment vehicle depends on you. “It’s a matter of how suitable [the investment] is to your unique needs, personality, and experience,” she shares.

If, for example, you need to have easy access to your money, you should invest in short-term investments like time deposits or money market funds, and steer clear of “vehicles” that are difficult to sell, like real estate. “Short-term investments don’t give you the best income, but it’s a way to make your money work for you while you don’t need it.”

Of course, longer-term investments offer higher income potential.

Myth 3: If you’re afraid of risks, investment isn’t for you.

There’s such a thing as “conservative investors”, so if you’re afraid you’ll lose a lot of money, you’re not alone. “If you’re a conservative investor who’s more concerned about protecting your money, you should go for investments with guaranteed returns,” says Conferido. “Although smaller, they give you the assurance that there’s little to no chance of losing your money.”

Doing more research on your chosen investment could put your mind at ease. “You need to have a thorough understanding of the risks involved in investing,” says Conferido. “Know what these risks are and how they affect your investments. That’s not to say don’t try new investments—just make sure you understand what you’re getting into.”

Although, it should also be pointed out that while many aggressive investors make tons of profit, a lot of them fail as well. “There’s no such thing as a low-risk, high-return investment,” cautions Conferido. “If it sounds too good to be true, it most likely is.”

Myth 4: Don’t bother with mutual funds.

Conferido thinks that there are many advantages in investing in a mutual fund: First, it’s hassle-free investment with instant diversification: “Since the fund is managed for you, you don’t need to worry about timing the market, because professionals will work out what to buy or sell and when it’s the best time to do so,” she shares. Second, you get more interest compared to regular savings and time deposits. And third, there are many mutual funds to choose from that fit your needs and personality.

“Whether you need easy access to money or don’t mind leaving your money invested for a long time,” Conferido says. “Or whether you’re a conservative investor looking for stable returns, or an aggressive investor looking for the highest income potential—there is a mutual fund for you.”

Myth 5: You need to be financially savvy to invest.

Anyone of legal age can start investing—and you don’t even need a million in the bank to start! “BPI has investment funds that start for as low as P10,000,” shares Conferido. “And you don’t need to be financially savvy to start investing. You just need to understand how investment works.”

Conferido put it this way: “You basically buy units of a certain fund and these units are priced daily, depending on the market’s conditions. You make money if the price of the units are higher than when you bought them for.”

Myth 6: Investing will make you rich right away.

Unless your capital was worth billions, you won’t see much growth right away. “What people don’t realize is that if you start with a small amount, you need time to make your money grow,” explains Conferido. “The best way to make a big profit is to keep making consistent contributions to your investments, even if it’s small. This way, you build your capital while earning income at the same time.”

Consider this: based on a regular subscription plan for investment funds at certain banks, you could start with a base of P10,000, and add P3,500 every month. Based on an aggressive portfolio with an annual return of 10.78%, you could have more than P1 Million after 12 years.