Common investing mistakes and myths, and the simple rules that avoid them

Mistakes

• Trying to time the market: selling after falls and buying after rises.
• Concentration: too much in one stock, sector or theme.
• Ignoring costs: fees compound against you just as returns compound for you.
• Using borrowed money to invest, which can magnify losses beyond what you put in.
• Chasing last year’s winner without asking why it won.
• Investing money you will need soon.
• No plan for what to do when prices fall.

Myths

“The stock market is a scam.” Markets are regulated public exchanges where companies are owned in pieces. Scams exist around the edges (pump-and-dump schemes, fake platforms, promised returns), but the market itself is not one.

“Investing is gambling.” Gambling has a negative expected outcome by design. Investing in productive assets has a long-run positive expected outcome, with large variation along the way. Concentrated, short-term, leveraged speculation looks much more like gambling.

“You can’t lose it all.” You can lose a lot, and a single stock can go to zero. A broad fund holding hundreds of companies is far less likely to, though it can still fall sharply.

“Now is the worst time to start.” Every moment in history had a reason it felt like the wrong time. Nobody can reliably tell which moment is best in advance.

Can you get rich, or retire on investing?

Many people reach financial security through years of steady saving and investing; fewer get rich fast, and those who try often take outsized risks. Whether you can retire on your investments depends on how much you save, how long you stay invested, what you spend and how markets behave, none of which is guaranteed.

Simple rules

• Only invest money you will not need for years.
• Diversify.
• Keep costs low.
• Automate contributions.
• Write down your reasons.
• Review on a schedule.

If an opportunity promises high returns with no risk, treat that as the risk.