Five conjectures about investing that scare us

YEREVAN, March 13, /ARKA/. Investing is a responsible step that affects the present and the future. Obviously, no one wants to make serious mistakes and lose capital. Often, however, reasonable fears are replaced by prejudices. This is especially well seen in areas that most people find it difficult to relate to their own lives. We will find out whether it is worth paying attention to "scare stories" about investing by examining five common allegations

1. Investing is like playing roulette

Many people, not without the influence of popular culture, imagine the process of working in the market in this way: participants make instant transactions, reacting to the growth of profitable assets and relying on luck.

Indeed, one approach to trading securities is that an investor sells and buys them, depending on price movements, making a decision in a short time, sometimes within minutes. This is called speculation. In economics, the definition does not have a negative connotation, unlike the stereotypes held by a part of the population. In fact, speculation is one of the investment strategies. It is characteristic of seasoned market participants who are able to assess the situation and are ready to take risks.

In addition to speculative, there are investment and dividend approaches. The investment approach involves buying shares that are currently undervalued by the market, but promising, and waiting for them to become profitable for sale. The dividend approach involves buying securities that are secured by regular payments from the company's profits (dividends).

But if you want to get a high income in the long term, for example, for your children's education, you can buy shares of very large companies. Their price will outpace inflation and bring high profits after a long period of time.

You choose a strategy based on your own capabilities, objectives and attitude to risk. In addition, you should realize that trading shares is not the only way to invest. If your goal is, for example, to save money, you can choose assets with predictable returns such as deposits and bonds.

    

2. You will definitely lose your funds to scammers

Unfortunately, in any sphere of life a person can encounter fraudsters, and investing is no exception. People who reject the idea of making money on the financial market often refer to the negative experience of those who lost money by trusting unscrupulous companies.

The truth is that when investing, you will interact with intermediaries, and the success and safety of transactions will largely depend on their choice. The investor independently searches for a company in which to open the necessary brokerage account for trading on the stock exchange. This process is not based on chance, but on conscious preparation.

To choose a reliable broker, focus on a number of criteria:

- availability of a valid license. This is open information which companies usually publish on their official website. The license itself says by whom it was issued, for example, by the Central Bank. So, you should go to its website and check whether there is information about your potential broker there;

- variety of services and financial instruments;

- rating;

- quality of service;

- transparency of tariffs.

Serious brokers are not interested in associating their name with stories of fraud, ruining their reputation and attracting sanctions from legislative bodies. When choosing a broker, do not deceive yourself, trusting promises of high profits in a short time. And then you will be able to protect yourself from fraudsters.

3. Only professionals can invest

People often dismiss the idea of investing considering it to be the domain of professionals. They don't even try to learn about existing assets and figure out exactly how to make money.

Answer yourself the question: what exactly scares you. If the problem is lack of knowledge, but you are interested in investing, try to understand the important concepts first on a basic level. Information is available not only in textbooks and reference books, but also in more "comfortable" formats (social networks, channels, magazines).

Contact a company that provides brokerage services. Managers will tell you in detail about all financial products and ways of investing, explain how to open an account and make transactions via applications and websites. Most likely, you will be offered options for an already balanced portfolio or a specialist who monitors asset optimization.

Consider mutual funds as a way of investing. They are organized in such a way that management companies select and dispose of financial instruments.

The efficiency of transactions is based, first of all, on a clear understanding of what you want to achieve, the choice of the right means for realization: a reliable broker, strategy, platform (stock exchange, currency market, etc.).

   

4.The financial market is an accumulation of opaque mechanisms

People often confuse the concepts of exchange and over-the-counter market, do not distinguish exchanges by types. The image of an unregulated marketplace where "everyone trades everything" naturally does not inspire confidence. To decide to invest, you need to clearly understand where, how and why you are investing. Only by understanding the structure and instruments of the market, you can clarify the potential benefits and risks in your particular case.

To begin with, it is necessary to separate the concepts of exchange and over-the-counter markets.

The exchange market is an organized trading floor. Only companies with a license from the regulator - a special body that monitors the legality and transparency of transactions - have access to it. The exchange establishes uniform rules for all participants, forms the price of assets on the basis of supply and demand, creates conditions for transactions, registers transactions and protects investors' rights. Investors trade assets through licensed brokerage companies that open an account and provide technical capabilities.

The over-the-counter market is a decentralized platform where there are no established rules and strict requirements for participants. Securities of small companies or those that do not publish reports are traded here. They are not represented on the main market. Over-the-counter platforms are characterized by low turnover, so it is more difficult to sell and buy assets there at a favorable price. Since there is no regulation and centralized control, the risk that a transaction will not be executed or will be unsafe increases.

The advantage of the over-the-counter market is the wide range of instruments presented. People with extensive experience and knowledge can effectively take advantage of the specifics of the marketplace. Beginner investors are better off going to the regulated market..

Depending on what financial instruments are sold and bought on stock exchanges, there are several types of exchanges.

For example, stocks and bonds are traded on stock exchanges. On commodity exchanges, the main assets are real commodities, such as precious metals. There are also separate platforms for currency and cryptocurrency trading. Having determined the strategy and instruments, the investor can choose the appropriate platform.

   

5. Investing requires a large investment

You don't necessarily need a large entry capital to start investing. Many brokers do not set a lower limit for the first deposit. You can invest small amounts at the initial stage to gain experience in this field without fear of facing serious losses. This will allow you to understand what aspects cause the greatest difficulties, what knowledge and resources you lack, how convenient it is to work with the chosen broker and the services it offers.

Try several instruments associated with different degrees of risk. In Armenia, the lowest nominal value of government bonds does not exceed ten thousand drams. Such an investment is accessible to many people and as a result guarantees a return sufficient at least for effective saving. Besides, the income on government bonds and debt securities of companies listed on the stock exchange is not taxed. This is an advantage of the instrument over deposits. Recall that income on deposits is taxed at 10% in Armenia.

You can also buy shares of large and reliable companies for a small amount. Such issuers are almost not exposed to the risk of bankruptcy, their securities are easy to buy and sell on the market, the volatility of the asset, i.e. price fluctuations, is generally lower. Due to the scale of the issuer and linear development, you should not expect the shares to grow in times, but you will get stable dividends and investment experience.

 

Conclusion

By the example of several "myths" about investing you can understand that judgments of this kind often refer to distorted or outdated information. It cannot be excluded that there is truth at their very core. Indeed, there are various risks, such as fraud or bankruptcy of companies. However, the effect of "scaremongering" is contained in a bright headline, which quickly spreads and is stored in people's perception.

The success of investing depends on your own steps, readiness to analyze and search for the best options.

The material was prepared as part of a joint project "Year of Investing in Oneself" by ARKA and AMI Novosti-Armenia news agencies and Freedom Broker Armenia.

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10:00 03/13/2024