Nine Investing Beliefs Checked Against the Data

Many people who could benefit from investing never start, or start and then make costly moves, because of beliefs that sound sensible but don't match the evidence. The beliefs below come up again and again in conversations about money. For each one, here is what the data and research actually show. None of this is personal financial advice, but understanding the evidence can help you ask better questions and make calmer decisions.

1. "You need a lot of money to start investing."

What the evidence shows: this was once true, but it no longer is. Many brokerages have no account minimums, charge no commissions on stock and exchange-traded fund trades, and offer fractional shares, so you can buy a slice of an expensive stock or fund with a small amount. Workplace retirement plans let employees invest a percentage of each paycheck, and many employers add matching contributions. Starting small and early often matters more than starting big, because of compounding.

2. "Investing is basically gambling."

What the evidence shows: short-term trading can resemble gambling, but owning a broad slice of the stock market over long periods has historically been rewarded. The S&P 500, an index of large US companies, has returned roughly 10 percent a year on average before inflation since 1926, according to widely cited historical data, though with large swings along the way. The key difference from gambling is that companies produce earnings and grow over time, while a casino game has a built-in negative expectation for players.

3. "You should wait for the right time to invest."

What the evidence shows: timing the market consistently is extremely difficult, even for professionals. Some of the market's best days have come shortly after its worst, often during periods of panic. J.P. Morgan Asset Management's annual research has repeatedly shown that an investor who missed just the ten best days over a 20-year period would have ended up with dramatically less, often around half, than one who stayed invested throughout. Investing regularly, regardless of headlines, removes the guesswork.

4. "Picking the right fund manager beats the market."

What the evidence shows: S&P Dow Jones Indices publishes regular scorecards, known as SPIVA reports, comparing actively managed funds with their benchmarks. They consistently find that most active funds underperform their benchmark index over long periods, especially after fees. Over 15 years, the large majority of US large-cap funds trail the S&P 500. This is why low-cost index funds have become so popular.

5. "Real estate is always safer than stocks."

What the evidence shows: property can be a good investment, but it is not risk-free. Home prices fell sharply in many US markets between 2006 and 2012, and owning property involves maintenance, taxes, insurance and the risk of empty rental periods. Property is also harder to sell quickly than stocks or funds. Each asset has different risks rather than one being universally safer.

6. "Cash in the bank is the safe choice."

What the evidence shows: cash is safe from market swings, and an emergency fund belongs in savings. But over long periods, cash often fails to keep pace with inflation, which steadily reduces its purchasing power. Money needed in the next few years belongs in savings, while long-term money usually needs some growth investments to keep up with rising prices.

7. "Young people can wait until they earn more."

What the evidence shows: time is the biggest advantage in investing. Money invested in your twenties has decades to compound. Someone who invests modest amounts early can end up with more than someone who invests larger amounts starting later, assuming similar returns. Even small contributions, especially those that capture an employer match, add up.

8. "Checking your investments often helps you manage them."

What the evidence shows: research in behavioral finance has found that investors who check their portfolios frequently tend to react to short-term losses and trade more, which often hurts returns. A study by Brad Barber and Terrance Odean, published in 2000, found that the individual investors who traded most earned noticeably lower returns than those who traded least. Reviewing a portfolio once or twice a year is enough for most long-term investors.

9. "Diversification means owning lots of stocks."

What the evidence shows: true diversification means spreading money across different types of investments, industries and regions, not just holding many similar stocks. Twenty technology stocks are less diversified than a single broad index fund covering thousands of companies.

Moving past the myths

Investing usually works best when it is simple: an emergency fund in savings, contributions to tax-advantaged accounts, low-cost diversified funds, a mix of investments that matches your timeline and comfort with risk, and patience. If you are unsure where to start, a fee-only financial planner, who is paid by you rather than by commissions, can help you build a plan around your own goals.