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7 Things Most Americans Don’t Know About Investing

January 27, 2022

5 min Read

Written by Jordan Rosenfeld

Edited by Molly Sullivan

Young finance market analyst in eyeglasses working at sunny office on laptop while sitting at wooden table.

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Investing can seem like a daunting way to start building wealth if you don’t know much about it. And the fact is, many people are confused or uncertain. According to Invest Right, a common barrier to investing is simply not knowing enough to get started. Moreover, as many as 39% of Americans don’t have any money invested in the stock market, at all, according to Bankrate. Here we look at other aspects of investment that most Americans don’t know about with the goal of helping you get educated, the first step to growing wealth.

You Can Learn the Fundamentals of Investing Yourself

If you think you can’t get started investing because you don’t know how, information is available in any number of places, said Jeff Mains, financial expert and CEO of Champion Leadership Group LLC.

“Despite the fact that the expanding brokerage sector is a hive of rivalry to provide the newest and greatest trading alternatives, most investors will find that the fundamental necessities can be found almost anyplace.”

You can consider reading investing books to learn the terminology; follow personal finance websites and or social media channels; or practice with stock simulators — tools that simulate stock market fluctuations without needing you to invest any money.

Advisors Are Unnecessary

If you think you need an investment advisor on hand, whom you must pay frequent fees or a monthly retainer to, you’re incorrect, said Nate Nead, managing principal at Invest.net. “Most retail investors are unaware…that it’s about four times more expensive to have an advisor who adds no value–dipping into your earnings with some type of fee,” he said.

This conundrum has only become more pronounced with the advent of the robo-advisor, he explained.

He said that while investors may want the security of someone to talk to about their finance and investment decisions, “they should pay hourly for advice and let today’s markets and tools do the work for them at a fraction of the cost.”

You Don’t Need To Cut Expenditures To Start Investing

If your approach to freeing up the money to invest is to cut expenses, Matthew Robbs, founder of Smart Saving Advice, claimed “that is 100% the wrong advice.” Instead, he recommends trying to increase your income and invest the extra money that you make.

“Starting a side hustle has never been more popular and many people are even building those side hustles into full time businesses. Something as simple as going out to garage sales or thrift stores can easily net a few hundred or thousand dollars a month.”

Roth IRAs Help You Grow Money Tax-Free

You may have a Roth IRA, which stands for Individual Retirement Account, but not really know much about it. “It’s a very powerful way to save for retirement, allowing your money to grow tax free,” said Andrew Lokenauth, personal finance expert and owner of Fluent in Finance.

“With a Roth IRA, you pay taxes when you contribute money in, and then you are not taxed on capital gains or dividends while your investments grow in the account, or when you make a withdrawal at retirement.”

The Difference Between Market Orders and Limit Orders

Be certain that you understand the nature of the purchase or sell order you’re making on investments, Mains encouraged. “Unlike market orders, which will be executed as fast as possible regardless of the current market price, limit orders will only complete the transaction after you’ve chosen price parameters that you’re comfortable with.”

It’s Not Too Late or Too Expensive To Invest In Bitcoin

Bitcoin, a form of cryptocurrency, may seem like a farfetched investment option, particularly as it has become quite expensive. But Lokenauth said, “One of the biggest misconceptions about Bitcoin, is thinking that it is too expensive, and it’s too late to get in…Bitcoin is easy to invest in. You do not have to own an entire Bitcoin to gain exposure.”

Bitcoins are divided into units known as “Satoshis”– divisible down to eight decimal places. One-hundred million Satoshis make up one Bitcoin. “Satoshi’s are a great medium of exchange,” he said.

S&P 500 Funds Are One of the Safest Ways To Grow Wealth

Lokenauth adheres to the great financial expert, Warren Buffett, on a kind of fund known as S&P 500 funds. “To quote Buffett from his annual shareholders meeting in 2020, ‘In my view, for most people, the best thing to do is to own the S&P 500 index fund.'”

The S&P 500 is comprised of 500 of America’s largest companies, across 11 industries, Lokenauth explained. “So investing in the S&P 500 is an easy and stress free way to invest for the majority of people, because you’re not betting on a single company but instead, 500 of America’s largest companies.”

According to historical records, he stated, the average annual return since the S&P 500’s inception in 1926 through today is around 11% per year.

So, if you invested $10,000 in an S&P index fund, and contributed $10,000 a year for 20 years, you would have invested a total of $210,000 cash, but this amount would have grown to $793,274.56 based on the S&P 500’s historical records of an 11% rate of return compounded annually.

Even if you don’t know where to start, you can’t go wrong by learning more about investing.

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