Don’t Fall for Investment Myths and Misinformation

Do you follow the financial media and sometimes come away wondering what’s true and what isn’t? There’s misinformation out there, and it can be tough to separate the legit investing information from the fakes. Since the 2022 recession began, there’s been a resurgence of stories about gold being the best investment opportunity of all time. It’s hard to ignore other narratives that focus on topics like how to get small business loans, whether portfolio diversification is always a good thing, and how to decipher the mysteries of compound interest. The following points highlight the bunk factor in each of those subjects and attempt to set the record straight.

Online applications take a few minutes, and many are approved every year. Choose your three favorite finance websites and do a search on the term business loans. There’s a lot of editorializing about how challenging it is to get approved for a small business loan and how difficult it can be to fill out applications. That might be true for loans from a few of the larger banks and institutions, but it’s generally quite easy to take out small loans to start a business of your own. The fact is that almost all entrepreneurs build up their initial capital resources by taking out loans to open a company’s doors. This is particularly true for one-person and smaller operations in virtually every industry. It doesn’t matter whether the founders are first-time borrowers or experienced entrepreneurs who have started dozens of other businesses in the past.

The truth is, it’s not. Gold does well over the long haul, but in shorter time frames, particularly under ten years, it seldom outperforms the stock market. The reason for all the hype is that many people believe gold’s per ounce price will skyrocket is the global economy collapses. That could very well be true. But historically, the yellow metal is not anywhere near the best place to park idle capital resources.

This reality is too much is a waste of time and money. Diversifying a portfolio can be a powerful way to protect capital assets. But there is a limit. Consider that it is seldom cost effective to keep hundreds of stocks or other assets in a portfolio. Most aim for somewhere around 10 different assets to achieve an acceptable amount of risk diversification.

The famous scientist never said any such thing. Compounding allows for interest on interest, and it can be an effective way to earn high growth rates on long-term investments. All over the internet and social media sites, there are supposed quotes from the most renowned scientist of all time, Albert Einstein, stating that compound interest is either the eighth wonder of the world or a mystery more complex than his Nobel Prize-winning Theory of Relativity. The problem is that Einstein never addressed the topic of compound interest, but the fake quotations make for interesting reading.