Let’s bust some myths and make some money, y’all.
This writer’s favourite movie “about” the “stock market” remains the inexplicable Ridley Scott film A Good Year (2006) starring Russell Crowe, Marion Cotillard, and Archie Panjabi.
Number one: the film is more about wine and provincial France than anything else (and we love wine in this household).
Number two: for the hilarious, caricatured renderings of life as an investment banker. Earpiece and shitty attitude inclusive.
Number 3: that Ridley Scott (the guy who directed Alien, Prometheus, and Blade Runner, lmao) agreed to direct a legit romcom in part because the film set was fewer than 10 minutes from his house in the Luberon. Get that bread, Ridley.
But I digress. Investing is often portrayed this way because there is a misattributed “rockstar” hype attached to wall street types. But is that necessary, or earned? Either way, the result is that investing remains dogged by myths that hype it up while discouraging average folks from getting involved.
And that opaqueness can prevent Canadians from building their wealth.
So today, we’re gonna do some investment myth busting.
Common Investment Myths Busted
Here are four common myths you shouldn’t believe if you’re keen to start investing.
You Can Consistently Beat the Market
Hate to break it to you aspiring Wolf of Wall Street types. But generally speaking, active investment doesn’t tend to outperform the market except in specific circumstances.
(You can read our article on the differences between active and passive management here.)
The investment-banker-as-rockstar vibe portrays an idea of a super cunning, cutthroat money genius that can outsmart the market to earn big returns. But according to a recent take by Morgan Stanley, this is only really feasible in one market condition: extreme market volatility.
When the market is bouncing all over the place, stock pickers are more likely to outperform average market growth.
But when the market is calm and on a steady growth trajectory (as it often is!), passive funds that track a diverse market index tend to consistently perform better than actively managed funds—and passive management is usually way cheaper.
So when deciding how you want to invest, don’t assume that an actively managed fund—or picking stocks yourself—will automatically make you a stock market winner.
You Have to be Rich
Another common myth? Investing is only for bigwigs, richie riches and fancy bois in their lil sports cars. Not true. Investing is for average Canadians, like you and me, that are working hard to have a comfortable retirement.
Make no mistake: there are investment opportunities that require a high minimum investment. Certain stocks might cost thousands of dollars. But there are options that can work for you no matter what your budget.
Lots of Canadians are turning to robo-advisors to begin investing, like our pals at Moka. Moka actually has a function where they’ll round up your transactions and invest the extra for you—literally investing only your spare change.
So don’t be discouraged by high minimum investments. Keep looking. You’ll find an investment strategy that works for you.
You Have to Pick “Winning” Stocks
Finding success as an investor isn’t about outsmarting the market, or spending all of your time researching “winning” stocks. It’s a fool’s errand and we can prove it.
Ever heard of Malkiel’s Monkey?
In 1973, Burton Malkiel conducted an experiment where a blindfolded monkey threw darts at a newspaper’s stock page, and then tracked the performance of those stocks. The monkey’s “picks” outperformed those of experts.
The point? To a degree, market returns can be kinda random. Therefore, investing in a diverse portfolio of varying financial products is more likely to bring you success than trying to pick a handful of “winning” stocks.
You can read this article from Forbes to learn more (including regarding the monkey’s own shortfalls). This article is from 2012, but it does a good job of explaining.
Stocks are Better than ETFs
In part because of the stock market/Wolf of Wall Street types depicted in pop culture, there’s a wide misconception that buying stocks is the only investment strategy worth our time. This isn’t true.
The fact is this: for most Canadians, it doesn’t make sense to bet our savings trying to win big on a lucky stock pick. Instead, average Canadians should consider investing as a marathon, not a sprint, and should consider investing in lower risk, slower growing financial instruments to see a greater return over time.
This is why experts like exchange-traded funds (ETFs). ETFs are baskets of securities that track indexes. This means they’re generally lower cost, and they’re far more diversified than simply buying up shares of one stock.
ETFs can be a great option for Canadians looking to build wealth over time. To take part, just find an ETF that you like with the help of your broker, or use a robo-advisor, and hop to it.
Regular contributions to your ETF investments paired with compound interest over time could make you mad cash. Like, maybe millions. Seriously. No screaming into your earpiece required.
Investing can be a great way to build lifelong generational wealth. Don’t wait. Put your money to work today. And, as always, do your research and get help if you need it.
This blog is provided for informational purposes only, isn’t intended as investment advice, and isn’t meant to suggest a particular investment or strategy is suitable for any particular investor. If you’re unsure about an investment, you may wish to obtain investment advice from a qualified professional.