Michele Cagan emphasizes that women don’t need to excel in math to succeed in investing, but preparation is key.
Women’s wealth is on the rise, especially during the Great Wealth Transfer, with more women engaging in the stock market than ever before. A 2023 Fidelity study revealed that 60 percent of women now invest in the stock market, up from 44 percent in 2018. Cagan, author of Stock Market 101, aims to increase this number further.
With a career as a CPA and financial mentor, Cagan helps clients understand investing, breaking down barriers that can make it seem daunting.
Her goal is to present investment information in an accessible way, avoiding the jargon often used by financial professionals.
Here are ten common investing myths that Cagan wants to debunk.
MYTH #1: You need a lot of money to start investing.
Many believe they should wait until they have substantial funds to invest, which isn’t accurate.
“Investing $5 weekly for a year is more beneficial than waiting to invest $250 after a year,” Cagan states. “Starting small is easier than ever, and the key is to begin sooner.”
MYTH #2: Investing is too risky; it’s safer in a high-yield savings account.
“Investing isn’t inherently risky. Trading is the risky part,” Cagan clarifies. “While investing carries some risk, not investing can also risk your money’s purchasing power as it diminishes over time.”
However, she notes that if you need funds within the next three to six months, a high-yield savings account is the better option.
MYTH #3: My 401(k) runs on autopilot; I don’t need to do anything.
This is misleading, as most 401(k) plans require you to actively choose investments or will place you in a target date retirement fund based on your age.
“You need to select investments that suit you, then you can set it and forget it for a while, but it’s wise to regularly reassess as your life and market conditions evolve,” Cagan advises.
MYTH #4: I should select multiple target date funds in my 401(k).
Cagan points out that a common mistake is choosing several target date funds.
She suggests selecting a single target date fund with a date at least 10 to 20 years beyond your planned retirement. Also, be aware that target date funds can have higher fees, so opt for those with the lowest expenses to maximize your returns.
MYTH #5: You must be a math expert to be a successful investor.
“Focusing on statistical analysis leads to trying to time the market, which is day trading, not investing,” Cagan explains. “However, understanding certain factors is crucial for comparing investments and making informed decisions.”
When assessing funds, compare fees. If looking at individual stocks, consider various parameters. Here are some questions to guide you!
MYTH #6: You can start investing without any goals.
Cagan often encounters clients who wish to invest merely to generate more money. “But what do you plan to do with that money?” she asks. Wanting more money is not a goal.
If you aim to buy a home in ten years, your investment strategy differs from saving for retirement in 40 years or funding your child's college in 20 years.
Defining your goals will help you select the right investment approach.
MYTH #7: You must know how to pick individual stocks to be a good investor.
“For many, investing in mutual funds, index funds, or ETFs is a better route than buying individual stocks,” Cagan says. “Investing in a fund gives you a diversified portfolio, reducing the risk of losing everything due to one stock’s poor performance.”
When comfortable with the stock market, selecting individual stocks can be wise. Cagan likens it to car shopping: “If you invest in a car, you’d do your research. You should apply the same diligence when choosing a company.”
MYTH #8: Start investing even if you haven’t paid off high-interest debt.
“Pay off debts with rates over 10% before investing,” Cagan advises. “But for lower-interest debts, like mortgages or student loans, continue making minimum payments while investing, as you may earn more over time.”
It's also essential to maximize your 401(k) matching contributions, as that’s an instant return on your investment. “I ensure I pay off high-interest debts while also securing those valuable matching dollars,” Cagan adds.
MYTH #9: Investing according to your values won’t yield profit.
This isn't true. Socially responsible investing (SRI) funds can yield returns comparable to other funds, and you can invest in ways that resonate with your principles.
“Focus on what matters to you,” advises Cagan. “You can support clean air, clean water, or women in leadership while avoiding companies tied to firearms or tobacco and still achieve solid returns.”
However, do thorough research to ensure your chosen investments genuinely reflect your values, as many companies engage in greenwashing.
MYTH #10: I don’t need to review financials before investing in a company or fund.
“Regardless of your investment choice, it’s crucial to understand what you’re entering,” Cagan states. “Check mutual funds for net asset values and holdings, fees for buying and selling, and internal expenses. With individual stocks, financial details are even more critical as investing in one company carries greater risk compared to multiple companies.”
She advises reviewing a company's balance sheet to assess its overall financial health, not just its current performance. For mutual funds, understand the reasoning behind their weighted holdings.
“Anytime you invest, do your homework to ensure you’re making informed decisions,” Cagan concludes.
To explore investing further and learn effective stock analysis, join us every other Monday evening for our InvestingFixx club, where we empower women to confidently navigate the markets and take charge of their financial journeys!
