Don’t let these four investing myths hold you back
By Vanguard
The basics
Investing might seem intimidating, especially if you’re just starting out
A common misconception is that it requires a lot of time, expertise, and carries too much risk. However, these are just myths that can hold you back from reaching your financial goals.
Let’s debunk these myths and show you just how simple and accessible investing can be.
Myth #1: You need to wait for the perfect time to start
Timing the market can be more of a threat than time in the market. This is a key message for any investor looking to start their investing journey. This can even be the case when investment markets around the world are showing high levels of volatility. Keen and new investors could be forgiven for thinking if ‘now or later’ is the right time to jump in and start their journey.
The good news is that history has shown that investment markets have consistently grown over time.
The Vanguard 2024 Index Chart reminds us that successful investing is about broad diversification, a long-term perspective, and the discipline to stay invested when things get tough.
If you had invested $10,000 into the Australian share market in 1994, it could be worth over $135,000 in 2024*, despite multiple market swings along the way.
* Investment of $10,000 into Australian shares on 1 July 1994 would have been worth $135,165 on 30 June 2024. Based on S&P/ASX All Ordinaries Total Return Index performance, assuming no acquisition costs, fees or taxes, with all distributions reinvested. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Myth #2: You need a lot of money to start
Many people think they need a lot of money to start investing.
But, contrary to those beliefs, you don’t need thousands of dollars to begin. Far from it.
With Vanguard Personal Investor, you can start investing with just $200.
Many Vanguard Personal Investor clients set up an automated regular investing plan using Auto Invest. It allows them to consistently add to their holdings and take advantage of compounding investment returns over the long term.
An advantage of investing this way is that rather than trying to pick a good time to invest, buying at different times allows you to average out your total cost of investing. This is known as dollar-cost-averaging, and by spreading out purchases of investments over regular intervals, it can help even out the ups and downs of the market.
Auto Invest is easy to set up, flexible to manage, and could take the guesswork out of building long-term investing habits.
Myth #3: Investing is too risky
Another barrier to entry for many people is the fear of making a poor investment.
This is sometimes referred to as loss aversion – the fear of losing some or all of your money.
Investment loss is a valid concern because all investments carry an element of risk.
That was very evident in 2020 when financial markets tumbled heavily because of the rapid spread of COVID-19. Investors who panicked and sold their investments at that time could have recorded substantial losses.
Yet, less than six months later, financial markets had not only recovered, but some share markets were close to reaching record highs.
Investors who stayed the course through the market volatility were much better off than people who sold.
In fact, if you look at the performance of financial markets over the longer term, one of the things that really stands out is that investment returns across a range of different asset classes have been very strong.
The Vanguard 2024 Index Chart powerfully illustrates how sticking to a disciplined investment plan, with diversification across a range of asset classes, will invariably override short-term market volatility and deliver long-term returns.
It’s always important to do good research before choosing any investments, and having a spread of different assets will help reduce risk and minimise any losses.
Myth #4: You must spend a lot of time researching and picking “winners”
Vanguard’s founder, John C. Bogle, famously said: “Don’t look for the needle in the haystack. Just buy the haystack!”
What he was saying is that, rather trying to find one listed company or a few companies that may deliver a great investment return over time, it’s safer to invest much more broadly across the wider universe of listed companies.
It was this belief that led to Vanguard launching the very first index managed fund in 1976.
The first index investment trust, trading as the Vanguard 500 Index Fund, had a share portfolio constructed to match the top 500 companies that were listed on the United States share market at that time.
Tracking all of the company constituents of the well-known S&P 500 Index, it was essentially the first ever share market haystack.
That’s because, through a single investment fund (the haystack), investors were able to gain exposure to 500 major U.S. companies at once.
The portfolio managers of actively managed funds typically hand-pick stocks to put into their funds in the belief they will deliver higher returns than the share market. By contrast, index fund managers such as Vanguard invest in all of the companies within a specific share market index so investors can capture the market’s total return.
Finding companies that will deliver better returns than the broader share market is like hunting for needles in a haystack.
If you’re looking for a simpler way to get started, Vanguards diversified ETFs offer a ready-made solution – helping you stay aligned to your goals with a single, broadly diversified investment.
Important information:
Any investment is subject to investment and other known and unknown risks, some of which are beyond the control of Vanguard Investments Australia Ltd., including possible delays in repayment and loss of income and principal invested. Neither Vanguard Investments Australia Ltd (ABN 72 072 881 086 AFSL 227263) nor its related entities, directors or officers give any guarantee as to the success of any investment, amount or timing of distributions, capital growth or taxation consequences of investing.