Three myths about investing (Part Two)
This week, Wasat is illuminating investing, starting by debunking a few common myths – or at least a few misconceptions that held me back from investing my own first paychecks. Yesterday, I shared the false belief here that represented my greatest hurdle. Today, I’m coming clean with another one.
Myth: Investing is for rich people.
I didn’t view investing as something for “normal” people like me. I didn’t have trust funds, inheritances, or millions in earnings—I was just an entry-level office worker, fresh out of school, still scrounging around the office for leftover food and free coffee. I assumed no financial advisor would deign to speak with a minion like me--nor was I interested to speak with some Wall Street bro about the S&P 500. I told myself I would start investing when I got older and had more money to spare. Maybe once I saved and worked and clipped enough coupons for my bank account to hit six figures, investing would become appropriate for me.
Reality: While I may have been correct in my assumption that financial advisors would have little interest in dealing with a twenty-something's pocket change, there are other ways for normal people to earn money in the market. Earning passive income is also a far more viable pathway to achieving financial independence. Robo advisors use algorithms to automatically manage client portfolios, so when I signed up for my first robo-advisor service, I didn’t incur any administrative fees. There also wasn't a minimum deposit required for me to start investing (and the same will be true for you at Wasat!)
On the other hand, some types of investment services are indeed, best suited for "rich" people, or at least not investors like me. For instance, the management fees of a human financial advisor would cut into any returns that advisor earned on my investment. And because the fees are typically based on a percentage of the client's account balance, I would likely face a prohibitively high minimum deposit--or any efficiency-minded number-crunching money managers would realize my account wouldn't yield much pay off for them.
However, one “secret” of the ultra-high-net-worth set is earning passive income. I viewed buying an off-brand item and saving a few bucks here or there as ways I could be financially responsible, but I completely missed the memo that I could be earning up to [8%] on my principal every year. It doesn’t take a financial whiz to know that 8% on even $500 ($40, in fact, which then compounds each subsequent year) amounts to more pennies than I could pinch over the long-term.
What other concerns, ideas or questions do you have about investing? Respond down below, and Wasat will feature our most common or widespread ones in a forthcoming post. In the meantime, stay tuned for one more investing myth, debunked!
