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9 Investing Myths That People Still Believe

By U.S. News & World Report

Don’t believe these common money misconceptions.

With the nearly limitless amount of educational information available today, there’s never been a better time to learn about investing. Unfortunately, there is plenty of misinformation to go along with all the useful resources. The stock market can be extremely complicated, and not everyone who blogs or posts info about investing on message boards or social media sites has taken the time to provide accurate information. Even now, there are still stock market myths and misconceptions that investors believe to be true. Here’s a look at nine of the most popular investing myths.

Stocks are riskier than bonds.

It’s understandable that investors would believe this myth because the stock market is so volatile on a month-to-month or year-to-year basis. However, on a longer-term time horizon, the U.S. stock market has been remarkably consistent. Since 1926, the rolling 30-year average annual return of the Standard & Poor’s 500 index has stayed between 8 and 15 percent nearly the entire time. While investment-grade bonds can be extremely low-risk, so can a diversified portfolio of high-quality blue-chip stocks or a low-cost S&P 500 index fund, such as the Vanguard 500 Index Fund (ticker: VOO).

Your money is safe with a professional.

Just because a financial advisor has knowledge about the stock market doesn’t mean he or she is good at investing. In the past decade, 87.5 percent of active funds run by money managers have underperformed the market, according to S&P Global. Surprisingly, financial advisors are not even legally required to act in the best interest of their clients. Until a proposed Department of Labor Fiduciary Rule goes into effect, financial advisors are free to recommend investments based on maximizing fees and commission rather than potential client returns. Finally, there is always the risk of outright frauds and Ponzi schemes.

Buying stocks is like casino gambling.

Once again, people believe that stocks are riskier than they really are because they are thinking in the short term. If investors treat the stock market like a casino by making short-term, highly concentrated bets on high-risk stocks, they will likely experience the same type of terrible returns that the typical casino gambler could expect. However, by selecting a diversified fund or basket of blue-chip stocks, historical data suggests investors can expect annual returns of greater than 8 percent in the long term. There’s no casino in the world that can provide that kind of long-term payoff.

Investing requires a lot of money.

It’s easy to look at $5,000 in savings and think that buying stocks is not worth the effort. After all, an 8 percent return on $5,000 is only $400, which won’t go very far in paying for retirement. While it’s true that investors won’t get rich overnight by investing $5,000 in a diversified portfolio of stocks, the power of the stock market rests in compounding returns. If a person starts investing $5,000 per year in the stock market and gets an 8 percent annual return, that portfolio would be worth more than $500,000 within 30 years.

Past performance guarantees future returns.

An investment’s past performance on a long enough time frame can be an important indicator of what to expect in the future. But assuming that a stock, bond or commodity will continue its past trajectory in the years ahead can be a risky way of thinking. Traders that attempt to chase the hottest stocks often end up getting burned when those stocks experience short-term regression. Rather than trying to guess where a stock is headed in the short term by looking at the past, investors should choose quality, long-term investments and remain patient through the short-term market noise.

Fund management fees are too small to matter.

Mutual funds and index fund fees may seem so small that they don’t matter, but a closer look at the numbers shows just how much difference 1 percent can make. The average mutual fund investor is subject to annual expense ratio fees of 1.19 percent, hidden costs fees of 1.44 percent, tax inefficiency costs of 1.1 percent and “sneaky behavior” costs of 2.49 percent, according to Forbes. At an 8 percent annual return, a $100,000 investment can grow to $1,006,266 in just 30 years. However, losing just 1 percent annually to fees can drop that 30-year balance to only $761,226.

Gold is the best investment.

Unfortunately, while gold provides protection against inflation, there is little evidence to suggest it is a better long-term investment than stocks. From 1996 to 2015, gold generated an average annual return of 5.2 percent, well below the average annual historical return of the S&P 500. From 1970 to 2015, gold averaged a 7.9 percent annual return, roughly in line with the low end of the stock market’s historical range. While paper money may have no intrinsic value, gold doesn’t either. Like any other asset, gold is only worth what investors are willing to pay for it.

Only insiders make money in stocks.

Wall Street has gotten a reputation for being a collection of money-starved sharks that will eat the average investor alive if given the chance. However, the stock market is not a zero-sum game. As the U.S. economy has expanded, the S&P 500 has steadily climbed and delivered solid returns for all. With the rise of discount online brokers, Wall Street is no longer an exclusive club. The average investor can simply buy and hold a low-cost index or mutual fund and enjoy the ride.

Popular companies always make good stocks.

Just because a company has a recognizable brand or a popular product doesn’t mean the company’s stock will be a good investment. The market reacts to a number of different valuation metrics other than brand popularity. Investors value stocks based on share structure, earnings and revenue growth, company debt levels, subscriber counts, same-store sales and countless other industry-specific numbers. For example, Facebook (FB) and Twitter (TWTR) are two of the most popular and successful social media brands in history. However, in the past three years, Facebook shares are up 138 percent, while Twitter stock is down 45 percent.

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9 Investing Myths That People Still Believe originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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