Wall Street is something nobody really understands. When people do not truly understand something, they tend to spread false information. Over the years, I have encountered many myths of the mysterious stock market. I will explain the top ten myths about trading stocks.
- It is Really Hard to Start Trading Stocks
This could not be further from the truth. As you may have read in other posts on the site, it is very easy to start investing in the stock market. Technology has made everything, including stock trading, easier. You can trade stocks from anywhere today as long as you have a smart phone. First you need to open up a brokerage account with an online stock broker, such as TD Ameritrade. Now that you have a brokerage account, you need to fund the account. You have two choices to deposit money into your brokerage account, send them a check or link your personal checking account to the brokerage. After that, you are now able to trade stocks. All of this can be accomplished within a few business days.
2. You will Lose All of Your Money
After the great recession, it seems everyone thinks the stock market does nothing but go down. Although many people lost 50% or more of their investments in 2008, stocks have performed great since that time. The first month or so of 2016 have been very rough for stocks, but this is natural for the stock market. Investing in stocks has always been the best vehicle to park your retirement monies, and that has not changed.
3. You have to Be a Genius to Manage your Stock Portfolio
This cannot be further from the truth. I believe everyone should have a financial advisor, but it is not rocket science to properly allocate and manage your own retirement account. It may become scary after many years of investing and the portfolio’s value increases, but it is not impossible. The main goal of a stock portfolio is to beat or match the S&P 500’s performance. This can be achieved by diversifying your money into different sectors of the index. Today, everyone has access to thousands of articles on investing, so with a little time, you can save all those financial advisor fees.
4. You Have to be at a Computer All Day
If you are a day trader, you have to be on a trading platform most of the trading day in order to achieve you goals, but if you are managing money for retirement, you do not. You can make buy or sale orders before or after the market has opened, and the order will be placed when the market is open. There are many online brokerages that offer automatic trading. I hardly ever trade during business hours.
5. Trading Stocks Make Your Taxes Difficult
This is also a common stock market myth that is very untrue. I file my own income taxes every year, and most years I have traded over 100 times. Your brokerage will send you a 1099 form, which lays out every trade that was executed that tax year, and all you do is fill out the information on your 1040. For the past few years, I have been filing my taxes online, and only push one button to transfer all of my stock account information to my tax return. It is very simple to do.
I hope this post has helped clear up a few myths that have been floating around the stock world for years. Do not believe what you hear, especially if it comes from someone that has never traded a stock before. You have access to all the information on investing you will ever need, use it.