Which of the Following Statements About Investing is False?

“Which of the Following Statements About Investing is False?” It can be a daunting question, especially if you’re not confident in your knowledge as an investor. But it doesn’t need to be. Hear me out… 

When it comes to investing, there are a lot of false statements circulating. Especially in the last 30 years as the internet and technology have ramped up. Distinguishing which statements about investing are false or true can be tricky. It can even be downright overwhelming.

Today, we’re going to attempt to make it easier for you to determine fact from fiction when it comes to investing words of wisdom. 

Have you ever heard a statement about investing that you knew had to be false but you just weren’t sure? You’re not alone. Every day, investors read headlines, income reports, and all sorts of financial opinions that have them questioning their knowledge.

Even potential investors may be bombarded with a similar hail of doubt as they begin their research. If a newer investor turns to the wrong resources, it could set them back decades financially. We at Wealth Daily don’t want to see that happen.  

There are many rumors regarding investing, some true and some abhorrently false. By the end of this article, we’ll make it easier for you to distinguish between the two. We will go over some popular and lesser-known statements about investing and determine whether they are fact or false. 

So let’s test your might. Which of the following statements about investing is false? The answers might surprise you…

Which of the Following Statements About Investing is False? 

1. You Have to Be Wealthy to Get Started Investing
2. You Have to Invest X Amount of Money to Start
3. All Stocks Eventually Recover
4. Only Experts Can Succeed in Investing
5. Long-term investments are Always Safe
6. Stock Prices Reflect a Company’s Worth Accurately
7. Economic Downturns Mean Permanent Losses
8. Financial Advisors Are Always Right
9. Diversification Eliminates All Risk
10. Following the Crowd Ensures Success 

Investing Statement #1: You Have to Be Wealthy to Get Started Investing

False. Investing isn’t just for the wealthy elite. In fact, numerous investment platforms allow you to start with modest amounts. Initiating the habit of regular contributions matters more than the initial investment size.

There is a saying that “Time in the market is more important than timing the market.” Some people believe that they’re able to time the market — meaning, that they can time their trade with market fluctuations and minimize potential losses.

While the age of algorithmic trading has popularized this theory even more, investors should avoid attempting to time the market. Rather than trying to perfectly time your entrance, just start investing! The key to investing is consistency, not the size of the initial investment. This brings us to our next statement about investing.

Investing Statement #2: You Have to Have X Amount of Money to Start

False. Contrary to popular belief, you do not need $10,000 or even $1,000 to start investing. The idea that a specific amount is required for investing is a myth. Tailor your investment to your financial ability. 

Starting small is not only acceptable but often recommended for those new to the investment world. Many brokerage firms allow you to start with as little as $100 or even less. Begin with an amount that aligns with your budget and gradually increase as your financial situation improves.

Don’t worry about how much your friends or colleagues might be investing. All that you need to worry about is you and your portfolio. So if you feel that $50 isn’t enough to get started, I hate to say you’re misinformed. Rather than keep that $50 in a bank that will appreciate 1-2% annually (if you’re lucky), invest in a company you believe in.

The most important aspect of your journey isn’t how much you put in, but how much you get out. 

Investing Statement #3: All Stocks Eventually Recover

False. Unfortunately, not all companies and investors get a happy ending. The statement that all stocks eventually recover is inherently false. Not all stocks that crash live to see another day. A more famous example of this is Bear Stearns and the financial collapse of 2008.

Bear Stearns was founded on May 1, 1923 with $500,000. It survived the Wall Street Crash of 1929 and it seemed like they would never look back. The company went public in 1985, and by 2007 they employed over 15,000 people around the globe. 

That all came crashing down in 2008 when the subprime mortgages fell through and led to the recession of 2007/2008. Ultimately, Bear Stearns was purchased by a company created by the FRBNY (Federal Reserve Bank of New York) for $2 a share. Bear Stearns was then purchased by JP Morgan Chase. If this all sounds confusing, you’re not alone. You can read more about the Bear Stearns collapse right here.

At the end of the day, you need to remember that some stocks DO fail and never recover. That is the glory of stop-losses and other investment tools. Luckily, most brokerages provide their users with options to set up stop-losses and other triggers to prevent any major losses from occurring.

Investing Statement #4: Only Experts Can Succeed in Investing

False. This is an investing statement that I am happy to say is extremely false. In fact, it couldn’t be further from the truth. The only ‘experts’ that may have a substantially better chance at succeeding than regular investors are members of Congress. But that’s a different topic. 

It’s true that even amateurs can find success in the stock market. A ton of amateurs just made headlines in 2020 following a historic short squeeze on GameStop (NYSE: GME). While experts like Warren Buffett, Jamie Dimon, and Charlie Munger (RIP) have made names for themselves for their investing prowess, one thing is certain: You do NOT need to be an expert to experience success as an investor. 

Think of it this way, no one started as an investing expert. EVERYONE had to get started at some point. They’ve all had to make a first investment. Some have had more success than others, but their status of “expert” or “amateur” is hardly what dictates their success. 

Investing success comes from due diligence. It doesn’t require a Wall Street pedigree. Arm yourself with knowledge, stay informed about market trends, and leverage resources like Wealth Daily to empower your decision-making.

Investing Statement #5: Long-term Investments are Always Safe

False. While a long-term approach is generally wise, it doesn’t guarantee safety. Regularly assess your portfolio, adjusting it according to changes in your financial goals and the market landscape.

Long-term investing involves holding onto assets for an extended period, typically years or decades. Historically, this approach has yielded favorable returns, allowing investors to benefit from the power of compounding and weather short-term market fluctuations. But it’s not without faults…

Long-term investments are not immune to market volatility. Economic uncertainties, geopolitical events, and unexpected market shocks can impact even the most stable assets. While long-term investments have the potential to grow, it’s essential to consider the impact of inflation. Over time, inflation erodes the purchasing power of money, affecting the real value of returns.

Remember, informed decisions and ongoing assessment are key to navigating the complexities of the financial markets successfully.

Investing Statement #6: Stock Prices Reflect a Company’s Worth Accurately

False. While stock prices used to accurately reflect a company’s worth, that statement rings less and less true these days. Stock prices can be influenced by various factors, including market sentiment and speculation. Relying solely on stock prices without delving into a company’s fundamentals may lead to misguided decisions.

Many investors rely on “fundamental analysis” to accurately gauge whether or not a company is properly valued by Wall Street or not. While fundamental analysis isn’t foolproof, it does paint an accurate picture. 

Take Tesla, Inc. (NASDAQ: TSLA) for instance. Tesla stock currently trades for $254.76 and has a PE Ratio of 82.44. This is considered high, which means that investors are willing to pay a premium for each dollar of earnings. A high PE ratio is a clear indication that a stock is overvalued. 

Most value investors and those who employ fundamental analysis look for a company with a PE ratio closer to the range of 15 to 25. Traditionally, investors with a higher risk will gravitate towards higher PE ratios. Investors with a lower tolerance risk look for lower PE ratios. 

While a stock price doesn’t always reflect a company’s worth accurately, it doesn’t hurt to do your research. 

Investing Statement #7: Economic Downturns Mean Permanent Losses

False. While it’s true that not all stocks recover, it’s important to remember that most do. In fact, some investors look at economic downturn as a buying opportunity. Famous investor John D. Rockefeller is famous for saying “Buy when there is blood in the streets.” While it may be a morbid saying, it’s not false. 

Many investors find the best time to purchase stocks is when they are down. As the market and economy rebound, share prices rise, resulting in significant gains. Some economic downturns may last longer than others, however. It’s important to calculate your entry into companies during times of economic downturn with caution. 

Many investors have caught the proverbial “falling knife” in the stock market. There are many phrases to describe similar scenarios. A “Dead cat bounce” is another rather morbid saying that describes the movements of a falling stock. 

While economic downturn may seem like the end of the world for investors, it’s important to keep a cool head. Stay up to date on your investments and make adjustments accordingly. Remember, if you’re extremely worried about losing too much, you can always set a stop loss.

Simply put, economic downturn does NOT mean permanent losses. Sometimes it can mean an automatic gain. Sometimes. 

Investing Statement #8: Financial Advisors Are Always Right

False. This investing statement is an extremely false statement. We here at Wealth Daily may be a little biased toward financial advisors, but that’s not without reason. Brian Hicks, founder of Wealth Daily has a story from the stock market crash of 2007-2008 involving his parent’s financial advisor. 

You can hear Brian’s story involving his parent’s financial advisory right here. I highly encourage you to give it a watch. Not only does Brian tell a specific story exemplifying why financial advisors aren’t always right, but it also highlights why companies like Wealth Daily exist. 

While financial advisors provide valuable guidance some of the time, they aren’t infallible. It’s important to stay engaged in your financial decisions, ask questions, and seek second opinions when needed. Your active participation is crucial for a successful financial journey. I can guarantee your financial advisor isn’t as emotionally invested in your finances as you are.

Investing Statement #9: Diversification Eliminates All Risk

False. Diversification is a powerful risk management tool, but it doesn’t eradicate risk entirely. Over-diversification can lead to mediocre returns. Strike a balance by diversifying intelligently across different assets. 

One of the biggest threats to diversified portfolios is black swan events.  Unforeseen, extreme events with far-reaching consequences (like financial crises or global pandemics) can disrupt diversified portfolios despite careful asset allocation.

How can you protect yourself from black swan events and other diversification killers? Ensure diversification across different asset classes, including stocks, bonds, real estate, and commodities. This broader approach enhances risk mitigation. You can even take it a step further. 

Expand diversification beyond domestic markets. Including international investments can further reduce risk by minimizing exposure to regional economic fluctuations. While diversification is a potent risk management tool, it doesn’t guarantee immunity from all market fluctuations. Thoughtful diversification, coupled with ongoing assessment and adjustments, is essential for building a resilient portfolio.

Investing Statement #10: Following the Crowd Ensures Success 

False! The herd mentality in investing can lead to bubbles and crashes. Overall, I believe the herd mentality is a danger to investing. Herds get spooked easily, panic sell, cause crashes… It’s annoying! Make decisions based on your financial goals, risk tolerance, and thorough research rather than blindly following market trends.

While I enjoyed watching the Reddit and Robinhood crowds get into investing over the last three years, I am not in love with the herd mentality. Many of these investors fancy themselves as experts with the next hot investment when they’re following advice from a public forum with millions of followers. It doesn’t get more herd-like than that. 

At Wealth Daily we pride ourselves on being ahead of the herd. As Brian Hicks says, “We get to the good grass first.” 

So does following the crowd ensure success? No. Unfortunately, when it comes to investing, nothing ensures success. You can give yourself a much better chance at success, however, if you heed the advice in this article.

Did You Correctly Guess Which of the Following Statements About Investing is False? 

Well, there you have it. Did you correctly guess which of the following statements about investing is false? In the case of these 10 investing statements, all of them are false. But unfortunately, many people hold the majority of these statements about investing to be true. Luckily you now know the truth regarding these investing statements. 

Navigating the world of investing requires critical thinking and the ability to discern fact from fiction. Dispelling these myths equips you to make informed decisions on your journey to financial prosperity. Even if you don’t know which of the following statements about investing is false you shouldn’t worry. There is plenty of time to learn. 

If you want to continue adding to your investment knowledge, consider subscribing to our investment newsletter, Wealth Daily, for regular insights, analysis, and actionable tips. 

Arm yourself with knowledge and embark on a path to financial success, avoiding the pitfalls of these pervasive myths.