Three Common Investment Myths to Debunk in 2018
The problem facing many business people today is the desire to get rich overnight. They think making investments and getting rich is the same as a smooth train ride until they encounter the real hurdles, headache, and pitfalls. Here are some of the most common investment myths.
1. Taking risks is a mistake
The next time someone tells you they’re not willing to take risks in their investment, you may need to ask them precisely what they mean. Risk and return are interlinked. If you’re looking to earn higher profits, you will need to take a higher risk. It’s impossible to get one without the other, unless you fall victim to a Ponzi scheme where they promise you incredible returns without taking a risk.
A risk may also exist in other forms, for example, interest rate risk, foreign exchange risk, and liquidity risk that some investors will fail to warn you about. A risk in its own right is fine. It only becomes a problem when you take a risk that you don’t understand.
2. Bonds are always safe
In an ideal financial situation, bonds are deemed safe. If you hold a bond, you get paid off in case the company gets liquidated. However, it helps to know if the company you’re lending money is in good financial standing, rather than the bond itself. The global financial crisis in 2008 taught us not to trust banks when they tell us their bonds are safe. A good example is the Lehman Brothers.
Most retail investors usually find themselves in the cold whenever bonds are defaulted, despite the fact many were told by the issuing banks that bonds are the safest instruments with regular pay outs. They fail to look deeply into the companies they lend money to.
3. Properties are a sure win
While we consider real estate as one of the most lucrative pillars of investing, it’s still similar to many other investment strategies out there like bonds and stocks. You can lose money quickly if you buy the wrong asset at the wrong time.
One of the tiger economies, Singapore, has experienced phenomenal growth since independence, and previous generations of property owners earned enormous returns fuelling optimism that when it comes to real estate investments, overconfidence creeps in and people end up paying more than they can afford. This fuels the belief they will make money. But the reality turns out the opposite.
Before you make any investment, it’s wise to make all the important considerations rather than focusing on outdated information.