Investment fallacies gain credibility because they sound good. Many clichés related to investments are well-known because they are proven, but many offer only the perception of substance. Here are some investment fallacies you should disregard, and why:
You've Got to Spend Money to Make Money
Why? Transactions of different types all over the world take place using leveraged finance, loan facilities and good old-fashioned debt. The reason for this is simple; sometimes the best opportunities don't come up at the most opportune moment. Of course, most aspiring investors choose to wait, "until," and are still waiting. Leverage the available resources you have and gain access to investments that are worthwhile.
Your Home Is a Good Investment
Nope. Your home is a terrible investment. First of all, you live in it with your family and depreciate the residence itself. Furthermore, you don't pay any rent, and there are no tax benefits to owning a home that you live in.
There's a reason that your friends who are renting are laughing at you – they have some disposable income.
That's not to say that your home can't be a brilliant investment, but you need to rethink the way you structure your debt, and the benefits you receive from being your own landlord.
I'll Start an Investment Plan When…
"I'm going to do that one day," is the most expensive phrase ever uttered by an aspiring investor. The statistics about property investment are depressing enough – most investors stall at 1 to 2 properties, failing to achieve the critical mass that could transform their investment futures. Arguably even more depressing is the number of people you speak to who are definitely going to invest, one day.
I'll Be Fine
Interest rate fluctuations used to be the single major concern for investors and the general public alike. Now, all the rules of finance, capital and the nature of wealth are changing. The bitcoin surge has served as both a warning and an opportunity, with no real lessons coming, following a 'crash' that left the currency sitting at approximately quadruple its value when compared to 12 months earlier. The value of cash and global financial instability, especially in relation to the impact of politics on finance, has created yet another level of uncertainty. In any financial market, and probably any market, uncertainty is the cause of unpredictable fluctuation. This is the situation we find ourselves in, and the only solution is to accumulate enough genuine and tangible value in order to create a hedge against uncertainty.
Investment fallacies are dangerous because they make intelligent people feel like they are making the right decisions. They create a sense of certainty in uncertain environments and lead people to believe they know more than they do. It is better to be aware of the mistakes we have made and be given the opportunity to rectify them, rather than assuming we are doing the right thing and find ourselves feeling foolish when things don't end up going our way.