This Is the Most Common Misconception I’ve Heard About Investing

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Investing isn’t as hard as you might think. Discover one of the most common misconceptions people have about investing and why it’s incorrect. 

Investing is a great financial habit, but not everybody does it. In fact, about 39% of American adults don’t own any stocks, according to recent Motley Fool research.

For some people, it’s just a matter of not having any disposable income to invest. But I’ve talked to a lot of people about investing, and among those who don’t invest, the most common reason isn’t “I don’t have enough money.” Even friends on tight budgets have been able to invest a portion of their incomes.

Instead, when people tell me that they don’t invest, they usually follow up with “I just wouldn’t know what to invest in.” And my response is that you really don’t need to.

The most common misconception about investing

Many people think that if you want to invest, you need to pick the right stocks. They believe that successful investing is about finding the next Apple, Amazon, or Netflix. Unfortunately, those who aren’t confident in their ability to pick stocks often stay away from the market entirely.

But stock picking is only one way to invest. There’s also a much easier and more efficient way to invest. Instead of picking every stock yourself, you can put your money in a fund that invests your money for you.

One of the best ways to do this is with index funds, which are investment funds that seek to follow a market index. For example, there are S&P 500 index funds, which follow the S&P 500 (an index with 500 of the largest publicly traded U.S. companies). These normally have very low fees, and they spread your money across a large number of companies. You don’t need to worry about building a diverse portfolio, because the fund you choose does that for you.

So no, you don’t need to be good at predicting which companies are going to do well to be a successful investor. John C. Bogle, founder of investment company Vanguard, summed it up perfectly when he wrote, “Don’t look for the needle in the haystack. Just buy the haystack!” When you put your money in investment funds, you’re buying the haystack.

How to invest when you don’t know what to invest in

For most investors, the best option is passive investing. This is when you choose investment funds you like, and buy more of them every month. You can build a quality portfolio even with just a single investment fund this way, and it requires hardly any time once you set it up.

As far as which investment fund you should pick, here are a couple of good options:

You could invest in a target-date fund for your desired retirement year. For example, if you want to retire in 2055, choose a 2055 target-date fund. This type of fund does all the work for you, optimizing investments for your retirement timeline.You could invest in a total stock market or S&P 500 index fund. Either option will mean your portfolio largely tracks the U.S. stock market, which has historically grown by an average of about 10% per year. For what it’s worth, most of my money is in a total stock market Vanguard fund — and I write about stocks!

Every quality stock broker has these types of investments available. If you don’t have a brokerage account yet, head over to our list of the best online stock brokers to find one. Once you have a brokerage account, you can pick one or more investment funds you like. Then, just invest money on a consistent schedule, such as monthly or using money from every paycheck.

Investing doesn’t need to be hard work or take up a ton of time. You can get fantastic results with a target-date fund or with index fund investing. If you’ve held off because you aren’t sure what to invest in, don’t let that stop you anymore.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Apple, Netflix, and Target. The Motley Fool has a disclosure policy.

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