Spiritual Financial Planning
8 Myths (and Truths) About Investing
'Abdu'l-Baha encourages all people to be a “seeker of the truth.” In that spirit, we asked Lindsey to shed light on some of the most common myths (and truths) regarding investing and how to save for retirement. Prepare to be enlightened.

There's a lot said about investing and the stock market and often it can be hard to separate truth from falsehood. Below are what I think are the 8 most common myths about investing, culled from experience and financial planning experts.

1. I need a lot of money to invest.
As little as $50 a month can get you in the door if you set up an automatic investment plan which deducts money monthly from your checking account. Several larger brokerages offer this service for their dozens of mutual funds. And the minimum for most retirement accounts, such as IRAs, can be relatively low, depending on your income and savings – starting off at $1000.

One way to get a hold of your finances is by doing one of the budgets from a previous issue. If you're like many people you have money going into places you had no idea about, and just might be surprised at how much you can actually put towards saving for the future.

2. I need to closely follow the stock market to invest and I don't know how/don't have time.
Some investing experts say that actually the less you know about the stock market the better (you'll see why below). Brokerages are making it easier and easier for anyone to invest. For example, there is a relatively new way to invest called 'Target Retirement Funds', which are growing in popularity, particularly among young people new to the stock market. Simply choose what date you plan to retire, such as 2045, and the plan 1) invests you in a diverse portfolio (your portfolio is all of your investments), and 2) automatically calculates the appropriate ratio of stocks, bonds and cash. Generally, stocks are higher risk but offer the most growth over time, bonds offer steadier growth and are more stable/less volatile, and cash investments, like money markets, are usually very stable but don't grow as much. Experts recommend that young people should invest in stocks early on and slowly move your portfolio to more stable investments.  As you draw nearer to your retirement date a Target Retirement Fund automatically does this for you and becomes more conservative. Nearly every major brokerage offers this kind of fund.

3. I need to buy low and sell high.
It’s never easy to time the market and it’s easy to get cold feet if you’re endlessly watching and analyzing. Your best bet is dollar-cost averaging, which is kind of a fancy term for an easy concept - investing a set amount on a regular basis, whether weekly, monthly or quarterly. This is in contrast to investing one lump sum, which can be useful, but by doing so you'll miss out on the benefits of investing regularly over a period of time. Investing regularly, even relatively small amounts, guarantees you’ll get a lot of stocks when they're cheap and only a few when they're expensive. It will also commit you to invest. If you sign up for an automated deposit into your mutual funds many firms will waive their initial deposit fee, which can be great for young people just getting started.

4. Real esate/oil/computers is the next big thing.
Which one is the next sure-fire winner? Same advice as above – who knows? Even the pros on Wall Street who spend all of their time analyzing these issues are making educated guesses. Let's say you want to invest in a company, like a tech company. To really know if this is a good investment here are just some of the things that you'll have to take into account: past performance, company management style, projected quarterly earnings, the latest trends in the tech market, possible buyout or merger talks, environmental issues (what happens if they're in California and overrun by fires/quakes?), global economic trends (will they be shipping out to another country or sending most of their jobs somewhere else?), plans for company growth, shareholder input, possible pending legislation against/for the company...you get the idea. It's a pretty complex game.

The best strategy for most people is to have a well diversified portfolio - this minimizes your losses but also makes sure you get a taste of the gains. A broad portfolio includes things like large, mid and small cap domestic companies, established foreign markets, indexes, emerging foreign markets and also commodities such as food-stuffs. An easy way to do this is through a mutual fund, Exchange Traded Fund (ETF), or Index Fund, which are suggested by experts for most people.

These kinds of funds are when a group of people, often thousands, pool their money and invest in a variety of funds (vs. investing in one single stock and hoping you just invested in the next Google). They are diverse by nature and allow you to make money on a broad range of investments. Nearly every financial website and/or personal financial blog site has their ideal ratio of diverse investments. It's best to do your own research by visiting these sites and determining what combination works best with your desired level of risk and your age.

5. I am really young, have a ton of bills and its ages till I have to retire.
Saving for the long term has to begin now. Refer to my previous article about the amazing benefits of compound interest and investing over time. Short story: the earlier you start saving the more money you will accumulate and earn interest over a longer period of time. Most companies offer a matching amount on your 401(k), therefore to not contribute is actually throwing away free money! It’s easy to begin economizing in your life – from downsizing your clothing, books, meals or entertainment to save $50 a month which can get you started into a mutual fund. Also, if you are student you are eligible for discount cards such as Student AAdvantage for discount airfares, movie and bus tickets and more!

6. I am older, have a ton of bills, and don’t think I can ever retire.
In this case you’ve got every reason to want to save for retirement and investing, even though it can be difficult to overcome the inertia. Luckily, the federal government offers special incentives for those 50+ to invest by allowing catch-up contributions for 401(K)s, IRAs, and Health Savings Accounts (HSAs). Also, you can cash in on discounts – you only have to be 50 to qualify for AARP membership.

7. It's better to just open a savings account at my local bank rather than invest.
This is almost never true. The average savings account at your local bank is about .5%. Inflation averages about 3% every year. That means if you have your money in just a savings account you're essentially losing money. In fact it's impossible for you to keep up at that rate. The average rate of return on the stock market since its inception in the mid-1800s is about 10%. That's including the Great Depression. Investing for the long term, say the experts, is the only way to really build the nest egg.

8. Investing in the stock market is like gambling.
Yes. And no. It all depends on how you approach it. Here are some key things to keep in mind to protect your investment while making what you need to sustain a life of service:

1. Investing is usually, for most people, a long term gig. We're talking 30+ years. This is because over the short term the stock market can be very volatile. If you look at any successful mutual fund it looks like a mountain range in the short term. But over the long term you can see a clear pace of growth. This is also true for the stock market as a whole.
2. Diversity is key in your portfolio. Most of the stories of people losing all their money overnight are due to being heavily invested in one stock. A truly diverse portfolio means that even if your overseas investments take a tumble, your domestic large company investments can still be doing well and vice-versa.
3. The more you can put things on auto-pilot the better. This means both your contributions to your investments, through dollar cost averaging, as well as your actual investment. Many experts recommend just looking at it once a year with an eye towards shifting things around. But with the new Target Retirement Accounts, you don't even have to do that. It's all taken care of for you.

Comments

[John M Hilb]

Dear Baha'i FUNDamentals Team , Thank you for your article about investing . I feel that transactions need to be win-win , not win-lose . I saw a public television programme about the Blackfeet Indians in Montana . I think that one of the tribal members talked about making deals which are fair and beneficial for everyone involved . I think that one very good investment is contributing to The Kingdom Project . I think
that the Bible says something like : "But seek ye first the Kingdom of God and His righteousness , and all these things shall be added unto you . " (Book of Matthew and maybe other Gospels ? ) . The New Testament Gospels also talk about God taking
care of the birds and the grass , so why wouldn't God take care of His human children ? Some of the Baha'i prayers also say similar things . I think that asking God and Baha'i Spiritual Assemblies and the Baha'i Treasurer's Office for guidance
can put people on the road to investment happiness . Maybe , following a code of honor , bravery , and courage can help us with our transactions . Thank you . John M Hilb , Kankakee , Illinois 60901