Top 5 Myths About Investing You Probably Believe (And Why They Are Wrong)
With rising prices and stagnating wages, Singaporeans are facing increasing pressure to keep up with high costs of living. Learn how OCBC RoboInvest can help you reap benefits from natural market movements.
In case you missed it, Singapore’s Q3 growth came in at 4.1%, beating analysts estimates. That’s a good result for the nation, but the average Singaporean may find little reason to celebrate.
This is because we are all grappling with higher prices due to periods of high inflation in the past years, driving up the cost of living. Given that Singapore was ranked one of the world’s most expensive cities by the Economist Intelligence Unit (EIU) in 2023, how do we cope?
See, here’s the thing. The negative impact of inflation not only makes today more difficult, it can also impact your future. Having to spend more to cover living expenses means having less money to put aside for long-term needs that are not negotiable, such as retirement.
But with the economy in Singapore (and the U.S., for that matter) doing better than expected, isn’t there a way for ordinary folks like us to directly benefit from it?
How investing can help with beating inflation over the long term and preserve purchasing power
Why of course there is: Investing is the key to participating in the economic growth of countries via assets available in the stock market. In doing so, you stand to grow your wealth by accumulating returns generated by the assets you own.
Thus, by building a productive investment portfolio, you gain the potential to achieve the additional financial resources on top of what you already receive from your income. This, then, gives you all sorts of benefits and advantages, ranging from greater financial security, to a more comfortable retirement, and perhaps even the ability to retire early.
Importantly, the returns from your investing can be used to help you cushion the high costs of living and give you just a little easier time. Importantly, over the long term, investing can help you fend off the ill effects of inflation and preserve the purchasing power of your money.
But if you’re unfamiliar with the topic, or worse, have only ever heard it mentioned in horror stories, you might be labouring under some common misconceptions that are preventing you from enjoying the concrete benefits of investing.
It’s time to update your knowledge a little. Let’s tackle the 5 most widely believed myths about investing, and why they are wrong.
Does investing work to grow your wealth?
But first, it’s essential to set the stage by discussing whether investing actually works to grow your wealth. The answer is yes, and here’s the proof.
The S&P 500 is an index that measures the collective performance of the 500 largest companies by market capitalisation, listed on stock exchanges in America. It is the most significant and widely referenced stock market benchmark, and often taken as a shorthand for the performance of the U.S. economy, which is, of course, the largest economy in the world.
From 4 March 1957 through 31 December 2023 , the index has achieved an average annualised return of 10.26% in USD terms.
Here’s what that means: If you had invested just a single sum of $10,000 back in 1957, and did nothing until 31 December 2023, you’d end up with over $6.95 million. That’s because your investment of $10,000 earned 10.26% returns on average every year for 67 years straight.
Admittedly, it’s rare to have an ancestor with the foresight and resources to leave behind $6 million and change. But if there were more understanding of what investing actually is – and what it is not – perhaps more of the average folks like you and me can look forward to brighter prospects.
To that end, let’s take a look at these five common myths about investing, and see if they hold up under scrutiny.
Myth 1: Investing requires high capital
Many people don’t invest because they think it’s costly and requires a lot of money to get started. The eyebrow-raising prices of popular stocks such as META (US$567.16 per share, as of 1 November 2024), Microsoft (US$410.37 per share, as of 1 November 2024) and even Nvidia (US$135.37 per share, as of 1 November 2024) only reinforces the idea.
It’s not actually true that you need high capital in order to even start investing. With modern investing platforms such as OCBC RoboInvest, you can invest in the most sought-after stocks and funds from as little as US$100. This means you can invest in the portfolios you believe in at your own pace and budget, building up your investment as you go along.
Myth 2: Investing is complicated
With the sheer amount of stocks to choose from across different sectors, regions and economies, beginners may find investing complicated at first. Which stocks and assets should they pick? How can they build an investment portfolio that’s suited to their individual goals and risk levels?
Here’s the good news. Investing today has become much less complicated than before, with online robo-advisors and brokerages access to popular assets with a simple user interface that even beginners will find easy to navigate.
With latest-gen investing platforms, investing is made even simpler to get into. For instance, OCBC RoboInvest cuts through the clutter with pre-made portfolios for you to choose from. There are a total of 38 portfolios across seven markets, offering a wide selection for investors of all experience levels, from beginner to advanced.
Choosing which assets to invest in is easy. Simply select the historical annualised return, region and risk level to shortlist some potential candidates. Otherwise, browse the entire collection to see what catches your fancy, or check out the six most popular portfolios right on the OCBC RoboInvest homepage.
Myth 3: Investing is risky and it’s easy to lose money
A big reason that stops people from investing is the fear of losing money. No doubt, they’re understandably worried after coming across one too many dramatic headlines about “crashes” and billions “wiped out”.
It’s all a little bit overblown. The truth is, the stock market moves in cycles, and it is completely natural for stock prices to go up and down over the short term. But as history has proven, the stock market has always moved higher over the long term.
The tricky thing is riding out a recession when it happens. While they can be severe, recessions are usually short-lived. Case-in-point: the COVID-19 stock market crash. Driven by panic selling, the US stock market fell so sharply on 16 March 2020 that trading was halted for the day.
However, the market rebounded and started hitting new record highs in a matter of months. The S&P 500 recorded new levels in August, and later in November 2020, the Dow Jones Industrial Average crossed 30,000 – a historic first.
The takeaway from all this? In order to benefit from long-term gains, investors must be willing to put up with risk (or price volatility) in the short term. Panic-selling will most likely only lead to losses.
Even so, it can be worrying when your investment declines beyond a certain level, and you might be tempted to cut your losses by selling at an unfavourable price. But with OCBC RoboInvest, you can rely on smart portfolio rebalancing so you stay on top of market opportunities during periods of market volatility, helping you avoid making hasty decisions that could harm your investments.
Myth 4: Investing is time-consuming and troublesome
Another oft-heard complaint is that investing can be time-consuming and troublesome, as you need to transfer funds to your brokerage, wait for the funds to clear, then and go through the same process again when withdrawing your investment proceeds.
OCBC RoboInvest does away with all that, offering a fuss-free experience instead. Using the OCBC app, you can view your account and make investments any time you wish. With the ability to fund your investments directly from your OCBC deposit account, you can look forward to a truly seamless experience.
Additionally, OCBC RoboInvest helps you to automatically invest in a basket of stocks, rather than having to buy and monitor each stock one by one. This feature further helps you to invest without too much time or trouble.
Myth 5: Investing generates quick results
Investing requires time to show results. Of course, you shouldn’t expect to double or triple your investment overnight – that’s simply not how things work. However, with consistency (and some patience), it won’t be too difficult to see your investments bearing fruit in time.
The key to successful investing is to understand that the longer you invest, the more your returns potentially compound. As an example, consider what happens when you invest S$500 per month for 5, 10, and 20 years, at an average annual return of 10% (taking a cue from the S&P 500).
Notice how total contributions increase at a linear pace, as to be expected from a fixed monthly contribution. But the exciting part is how your profits grow, increasing significantly the longer you remain invested!
This also demonstrates why saving alone is unlikely to be sufficient in meeting your financial goals. At the end of 20 years, your profits from investing are more than twice of your savings.
Now, before you get too excited, remember that this is a simulation, and under real world conditions, your account growth will be impacted by market fluctuations. That means you are unlikely to hit exactly S$102,422.49 by the end of Year 10.
But the point here is to understand what compounding interest can do for you, given enough time. Thus, it’s okay to be patient when we first begin our investing journey. Remember, investing works best over the long term, so it’s best to start off with that mindset.
Conclusion: Start your investing journey with OCBC RoboInvest
Hopefully you’ve gained some useful insights into what investing is really all about and how online investing platforms offer a simpler, more personalised way to invest. Crucially, we’ve highlighted the benefits investing can provide to your financial health, and how it can assist you in coping with high inflation and rising costs of living.
OCBC RoboInvest makes it easy for you to embark on your investment journey. Start investing from as little as US$100 and choose from 38 themed portfolios across 7 regions according to your risk appetite or investment preference. Enjoy seamless investing via the OCBC app, and conveniently fund your account directly from any OCBC deposit account.
And to help you stay on track, you can set up automated recurring investing on OCBC RoboInvest. Not only will this help you practise dollar-cost averaging by investing consistently, you also won’t have to worry about missing out on market opportunities.
Promotion: Get up to S$908 cash rewards
So, if you are interested, from now till 31 December 2024, investors will get to enjoy up to S$908 cash rewards on selected investment and insurance products, including OCBC RoboInvest and GREAT Term Guard to help you stay both invested and protected.
For more details, check out https://www.ocbc.com/personal-banking/digital-banking/cash-reward.
A sponsored post written for OCBC. First posted on SingSaver.
