4 investment myths busted

When it comes to investing, not all commonly held beliefs are true, cautions Tamryn Lamb, Allan Gray's head of retail distribution.

She provides some tips on how to avoid some common mistakes and see through the myths.

Myth: If it is too simple, it won't work

Many investors think that if something is too simple, it can't work as everyone would be doing it, but this isn't true, especially when investing, according to Lamb.

"The most successful investors are those who over time, consistently spend less money than they make, save the difference, invest in undervalued assets, and are patient," she explains.

"Yet this sounds too boring to be true, which makes investors susceptible to getting distracted or falling for things that seem to promise faster or greater growth, taking them off the right path."

Myth: Economic forecasts will help me find the next best thing

Investors looking for the next opportunity often turn to macroeconomic factors to determine whether markets will or won't deliver strong returns.

According to Lamb, the problem with forecasting is that no one has a crystal ball, particularly for a field as complex as economics which is driven by multiple underlying variables and factors.

"And even if we could reliably predict, research suggests that there is no correlation between economic growth and share returns," she points out.

"What determines the success of your investment is the price that you pay for an asset, and how much you ultimately sell it for. Consider working with a reputable investment manager to help you identify the right opportunities, and do not pay undue attention to predictions."

Myth: Rely on your gut when you invest

Lamb says one of the biggest culprits in making poor decisions is your emotions. When performance dips, investors often throw out their carefully considered investment strategies and change tack.

Alternatively, they hold back on making investment decisions until there is enough positive movement to reassure them of not getting hurt.

"The most appropriate time to make changes to your portfolio is if your investment goal or risk appetite changes, or there has been a change in your circumstance. Tune out the noise, listen to your head not your heart and stick to your plan, to achieve long-term success," she says.

Myth: Quick wins will make me wealthy

When you invest, time allows your invested money to grow and compounding makes your money work harder for you.

"The key to successful investing is staying invested for long enough to reap the benefits from the potential returns, ride out the inevitable short-term ups and downs and allow the power of compound interest to increase the value of your money," says Lamb.
 
"Don't judge the daily performance of your investments. Successful investors have the patience to stick it out."

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