5 investing myths that could cost you

• Believing in these common financial myths can have a negative impact on your money.
• What may have been true decades ago may no longer be the case due to technology and the economy.
• While rules of thumb can be helpful, they do not replace individualized financial advice.
• Read more stories from Personal Finance Insider.

For decades, investing has long been known as a confusing endeavor, primarily reserved for the wealthy and far too complex for the average individual. But these notions have rapidly begun to fade with the exponential rise in the number of investing apps and influencers who have made investing both more accessible and relatable.

Even with these shifts in the financial landscape there are some costly myths that still exist. 

Myth #1: Investing is only for the wealthy 

The phrase 'it takes money to make money' is one of the reasons that this myth is still so pervasive today. While it's technically true that you do need at least some amount of capital to invest, it no longer requires thousands of dollars as it did in the past. "People hear 'investing' and immediately think of stock picking and day-trading, or of investing millions," says Elizabeth Pennington, CFP® professional at Fearless Finance, a financial-planning app owned by Atwood Financial Planning. "But anyone who's contributed even $20 to their retirement account is already investing." 

Investing firms were once notorious for requiring that clients have anywhere between $5,000 to $250,000 to meet with a financial advisor. In addition to that, if you were looking to buy a stock it would mean buying an entire share which, depending on the company, could be hundreds, sometimes thousands of dollars for a single share. 

This is no longer the case, with both fees and minimums for investing services have decreased dramatically over the years. Many brokerages now offer fractional shares, allowing investors to spend as little as $5 to invest into a stock of their choosing, which allows you to participate in the same percentage gains as someone who has more to invest.

Myth #2: Keeping your money in cash is safer than the stock market 

During times of market volatility, it may feel safer to leave your money in a savings account. This is a common reaction to avoid watching an investing account balance erode quickly due to a market event. While the nominal value of your savings will not experience a sudden drop in value (unless you make a withdrawal) you can lose purchasing power due to inflation. 

For example, $100 in 2001 would have been worth about $63 in 2021. During the same period, if the same $100 were invested in the S&P 500 it would have been about $534 in 2021. In economics this is known as opportunity cost, as not investing the money would have cost $295 in this situation. 

"If your money is fully in cash in a low-interest bank account, you risk the fact that inflation is outpacing interest rates. By investing it, that money is working harder for you, and has the potential to grow over time," says Kelly Lannan, senior vice president of Emerging Customers at Fidelity Investments.

Myth #3: All of your debt should be paid off before you start investing 

The debate between paying down your debt and investing is one of the hottest topics in personal finance next to owning a home versus renting. "This is most certainly false," says Pennington. "Telling them to wait to invest until the debt is gone could severely jeopardize their future financial security," she adds.  

One of the reasons this question has come up so often is because of the burden of student loans and how they have stretched budgets for millions of Americans. With limited funds, each decision is magnified: Focusing on paying down debt can provide a debt free lifestyle with more free cash flow, while investing can grow your overall net worth and help provide a comfortable retirement. 

The type of debt you may be looking to pay and the amount of that debt are absolutely important when considering this topic. But it's also important to consider the opportunity cost as well. For example, if it takes 10 years to pay off your student loan debt, that's also 10 years of compounding growth that you missed out on, making it much more difficult to reach your retirement goals. 

Myth #4: The stock market only goes up 

Overconfidence due to previous returns in the stock market can be deceiving. It's why one of the most common phrases in the investing world is that previous results do not predict future returns. Investors in the once-popular ARK Innovation ETF (ARKK), led by Cathie Wood, learned this fact rather abruptly. 

In 2020, the fund gained more than 150%. But in 2021, it reversed, losing nearly 32%. While it is true that the stock market gains more often than it loses, it's not an indication that the market rises all of the time, especially in the short term. From the year 2000 to 2019, a correction happened 11 out of the 20 years — which is 55% of the time according to Schwab Center for Financial Research. 

Myth #5: Investing is the same as gambling 

By definition, investing is the act of using your money in order to receive a financial gain. On the surface, it could look a lot like gambling, especially since both carry some level of risk and the gains are not guaranteed. Looking deeper however, there are several key differences between the two. 

Investing is designed to be mutually beneficial to the investor and the company. This is because the company uses the public markets to grow their business and that growth can help increase the investor's wealth. When the company does well, the investor does well. Gambling is the opposite where each party is on opposite slides; the casino wins only if you lose and vice versa. 

Putting it all together 

When it comes to your finances, a rule of thumb can be simple and effective tools to help steer you in the right direction but it is important to remember that it is not a substitute for individual situations. For more tailored answers to your financial questions consider seeking out a professional. 

"I want people to know that they don't have to be rich to access professional financial advice — looking for a fee-only, hourly planner can be a great way to get answers to questions without worrying about being sold something," says Pennington.