Money misconceptions: Five money myths to ignore
When it comes to personal finance, what works for one person doesn’t necessarily work for another. That’s why money misconceptions can be so dangerous. Here are four common money myths you may have heard — and perhaps even believe — that need to be put to rest.
Myth No. 1: All debt is bad
Reality: Few people could afford to buy a home, if they didn’t have a mortgage. You might not have gone to college without taking out a student loan. Instead of avoiding all debt, make sure you have a plan to pay it off by addressing high-interest loans first.
Myth No. 2: Avoid all credit cards
Reality: Credit cards offer flexibility that cash and debit cards can’t. Most card companies offer zero liability for any fraudulent transactions, while most debit cards have little protections if you find the fraud after a certain date.
Plus, you can earn extras through your credit card rewards, like airline miles for your retirement travel plans. Instead of nixing credit cards, plan to pay back the balance in full each month, avoiding the high interest charges.
Reality: There are many factors that influence day-to-day stock moves — the unpredictable news cycle, the economy, business decisions, rates and regulation — just to name a few. This why timing the market is so challenging, even for professional traders. While someone might get it right once, in order to end up ahead, studies have found one would need to guess correctly more than 65% of the time.
If only a handful of professional investors manage outperformance each year, the average investor’s chances are nearly microscopic. Meanwhile, you lose out on gains if your money sits on the sidelines while you seek the perfect moment to play. Stock markets are notoriously unpredictable in the short term and they should not drive investment strategy for most investors.
Myth No. 4: Pay off your debt before saving for retirement
Reality: If the interest on your student loans is 3.5%, but the expected returns in the market are 5%, then consider adding funds to your retirement account, since you’re making more than the loan costs. You could lose out on opportunities, like the benefits of compound interest, if you’re only focused on debt repayment.
Myth No. 5: You don’t need a financial advisor
Reality: Many believe that a financial advisor’s only job is to beat the market. To believe that would be to miss the main point of why it’s helpful to have a professional in your money corner. At its core, a financial advisor’s job is to keep you on track towards your financial goals. Whether it’s retirement planning, saving for college or meeting other goals, an advisor can help you determine how to approach some of life’s biggest financial decisions. Having a trusted advisor, you can feel more confident in your financial future.