While there are many barriers, personal finance myths are the major ones hindering you from wealth creation. These myths evolve as new investment methods and products enter the market. However, some famous sayings like ‘Investment is complicated and not everyone’s cup of tea’, ‘Stock market is a gamble’ and much more have existed since their inception.
These myths about saving and investment must be debunked to make informed decisions and meet your financial goals. Therefore, we have covered 10 famous and biggest investment myths vs facts to increase your personal financial education.
10 Biggest Savings & Investment Myths vs Facts
Myth1: Saving and Investing are the same things
Fact: It is a common belief in society that saving and investing are the same thing while both are unlike each other. Saving is the practice of keeping the extra money in a bank account, FD or in cash while investing refers to purchasing assets like stocks or equity, mutual funds and real estate whose value increases with time. Saving schemes generally offer low-interest rates over investment schemes and therefore, it is hard to overcome inflation with just saving money.
Let us have a look at some saving and investment options vs the average returns they offer:
| Savings Accounts | 2-2.5% |
| Fixed Deposits | 6-7.5% |
| Equity/Stocks | 10-15% |
| Mutual Funds | 8-15% |
Therefore, it is important to leverage other investment options to generate handsome returns and beat inflation.
Myth2: Investing is Complicated and Only Rich People’s game
Fact: This might be relevant in earlier times when investing was a complicated task and not everyone had access to the resources needed for investing. But today, time has changed and investing can be done while chilling at home. All one needs is an internet-enabled smartphone and a PAN card to start their investment journey.
Another similar myth is ‘I need a large sum of money to start investing’, which is entirely false. In India, one can start investing with just ₹500 in their pocket as many options are having a minimum investment amount of ₹100.
| Investment Options | Minimum Investment Amount | Interest Rates |
| Mutual Funds SIP | ₹500 | 12-15% |
| Stocks | ₹100 | 10-15% |
| National Savings Certificate | ₹1000 | 7.7% |
| Public Provident Fund | ₹500 | 7.1% |
| Sukanya Samriddhi Yojna | ₹250 | 8.0% |
Myth3: Financial Planning and Budgeting are the same things
Fact: Both financial planning and budgeting show some similarities, as they are meant to track and improve our finances. However, both things are significantly different from each other. Budgeting focuses on tracking spending habits and minimising unnecessary expenses to save money while financial planning is a broader field comprising all budgeting principles. Financial planning typically includes budgeting, tax planning, insurance planning, house planning, education and retirement planning.
Myth4: Real estate and gold are better than Stocks
Fact: While gold and real estate have passed the test of time and are good investment options, it does not imply they are better than stocks. It is essential to understand that investing in just one asset class can be irrational, whether it is just stocks, property or real estate. Therefore, experts recommend diversifying the investments in various asset classes like equity, gold, real estate and debt funds to overcome market volatility.
Let us look at the avg returns offered by various asset classes over the past few years:
| Asset Classes | Avg. Return over the last 20 Years |
| Real Estate | 9% |
| Gold | 12% |
| Equity | 17.2% |
| Debt | 7.2% |
It is evident from above that stock/equity has surpassed real estate and gold in the last 20 years and is one of the most lucrative investment options.
Myth5: Mutual funds are beneficial for the Long-term only
Fact: A common misconception about mutual funds is that they are suitable for the long term only. While this is true that they generate high and stable returns over the long term, it does not mean they are not suitable for the short term. Today, there are many Liquid Mutual Funds, a type of debt fund, which have a maturity period of not more than 91 days and offer lucrative returns under short duration. These funds invest in a mixture of fixed-income schemes like government bonds and T-bills to ensure fund protection and liquidity.
Myth6: Timing the market will generate more profit
Fact: It is not the ‘timing the market’, but ‘time in the market’ that generates profit and builds wealth.
Timing the market can lead to losses or even worse, complete loss of capital. Experts like Warren Buffet also believe that timing the market is a stupid decision and can be hazardous to your investment. You might get lucky a few times, but, in uncertain economic conditions and volatile markets, trying to time the market can backfire severely.
Myth7: Health insurance is not for young and healthy people
Fact: Health insurance is for people of all ages, from children to elders. With evolving lifestyles and emerging diseases, having health insurance becomes important. Also, having an insurance plan at a young age can benefit you in many ways:
- You get more coverage for a lesser price.
- You pay a lesser premium if you opt at a young age than when you grow older.
- You can claim a deduction of your premium(up to ₹25,000) from your taxable income under section 80D of Income Tax Act, 1961.
Myth8: Credit cards will lead you into a debt-trap
Fact: Many people believe credit cards promote impulsive buying and lead to a debt trap. However, it is not true and completely depends upon a person’s self-control. Instead, credit cards offer many advantages such as –
- Up to 50 days of interest-free credit: This allows users to make necessary expenses without paying instantly. This can be helpful in a situation like a delay in salary or any emergency.
- Build Credit Score: A credit score is one of the first things banks check before issuing any loan or facility. Credit cards help users in building a good credit score.
- Offers and Discounts: Credit cards often provide some cashback and discounts with them. Mostly in the form of reward points, which can be later settled in the bill payment or for activating some offers. This way, if utilised properly, credit cards can help you save a considerable amount.
Myth9: It is too soon or late to think about a Retirement plan
Fact: You should start planning for your retirement as soon as you start making a stable income. This is because starting early can help you generate huge wealth for your retirement with a small monthly investment. Let us understand this by a case:
Consider a person of age 30 years planning to retire after the age of 60 years and expecting to live till 80 years, with a monthly expense of ₹50,000. Taking a 6% inflation rate, he/she will need a corpus of ₹4.5 Crore to sustain his/her life post-retirement. For this, he/she needs to pay an EMI of ₹14,700 for the next 30 years or a one-time payment of ₹15.15 Lakh. However, if the same person starts planning for his/her retirement at the age of 40, he/she would need to pay an EMI of ₹45,000.
Myth10: Being Debt-free is important to start investing
Fact: It is not necessary to be completely debt-free to start investing. Also, not all debts are a liability, some come with benefits as well. For example, under section 80C of the Income Tax Act, one can avail of a deduction of ₹1,50,000 on home loans and a complete deduction on interest paid for education loans under section 80E.
Therefore, it is important to analyse the interests of both debt and investment and make a balanced decision.
Conclusion
Personal finance myths can impact your decision-making ability and inhibit you from doing the right thing. And when your hard-earned money is at stake, making decisions driven by some random myth is something you cannot afford. Therefore, it is important to stay away from any misleading words or close-to-truth lies and be vary of such investment myths vs facts.
We hope this article helps you understand the importance of financial education and overcome any spurious statements regarding savings and investment.
Frequently Asked Questions (FAQs)
Q1. What are some of the biggest myths regarding saving and investing?
‘I cannot save if my salary is less’, ‘Investing is meant only for experts’, ‘Gold and Real Estate are best ways to grow your wealth’, ‘I don’t need an insurance plan if I am young and healthy’, etc. are some of the famous myths regarding saving and investment.
Q2. How knowing about investment myths vs facts can benefit me?
Knowing about investment myths vs facts can help you make informed decisions and grow your wealth gradually over time. As a result of which, you can beat inflation by generating good returns on your investment.
Q3. Are saving and investing the same things?
No, saving refers to keeping extra income after expenses into a bank account, in cash or fixed deposits while investing is an act of growing your money by buying assets like stocks, property or mutual funds whose value increases over time.
Q4. Which is better, saving or investing?
There’s no direct answer to this. Savings can be a better option when you want security or to meet your short-term financial goals. While investing, though a bit risky, can generate high returns and help you meet your long-term goals.
Q5. Do I need a large sum of money to start investing? No, you can start investing with just ₹500 in India. There are many mutual funds, stocks and government schemes like PPF(Public Provident Fund), NSC(National Savings Certificate) and SSY(Sukanya Samriddhi Yojana) which offer a minimum investment amount of as low as ₹250.
