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Busting the Top 10 Investing Myths With Michele Cagan

Haley Paskalides  |  June 19, 2024

Michele Cagan says women don’t need to be good at math to be good investors, but we do have to do our homework.

It’s no secret that women’s wealth is growing (hello, Great Wealth Transfer) and that we’re investing in the stock market in larger numbers than ever before. A 2023 study by Fidelity found that 60 percent of women are invested in the stock market, up from just 44 percent in 2018. Michele Cagan, author of Stock Market 101, wants to see that number get even higher. 

Michele Cagan has spent her career as a CPA and financial mentor working with clients to demystify investing because she knows that getting started can be intimidating, anxiety-inducing, and confusing. 

She says that she wants to give people investing information in a way that makes sense for them, as opposed to making them feel like they need more help, because she knows that many financial professionals talk at an “expert”  level rather than using language that everyone can understand.

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Here are the Top 10 investing myths that Michele Cagan wants you to know.

MYTH #1: I need a lot of money to start investing.

Many people feel like they have to wait until they have enough money to invest, which simply isn’t true. 

“Investing $5 a week for a year is better than waiting a year and then investing $250,” Cagan says. “It’s easier than it’s ever been to start small, and starting sooner is the most important thing to do.”

MYTH #2: ​​Investing is too risky. My money is better in a high-yield savings account.

“Investing is actually not risky. It’s trading that’s risky, and those aren’t the same thing,” Cagan says. “Investing has some risk attached to it, but when you don’t invest, you’re also putting your money at risk because the purchasing power of your money goes down over time.” 

Cagan offers one caveat to this myth: If you have money that you’re going to need in the next three months to six months, it is better in a high-yield savings account than to be invested.

MYTH #3: ​​My 401(k) plan is on “autopilot.” Once the money is in there, I don’t need to do anything.

This is a myth, because most 401(k) plans either expect you to choose investments or default you into the target date retirement fund that they believe is right for you based on your age. 

“Either way, you want to pick investments that are right for you, and you have to do that actively,” Cagan says. “Once you’ve done that, you can set it and forget it for a little while, but you are going to want to revisit it and re-evaluate it as time goes by, as market conditions change, and as your personal family situation changes.”

MYTH #4: I should pick multiple target date funds in my 401(k).

Michele Cagan says one of the biggest mistakes she sees people make is choosing four or five target date funds. 

She advises choosing one target date fund and picking a target date that’s at least 10 to 20 years past your planned retirement date. She also warns that target date funds can have much higher fees than other investments, so make sure to look for the fund with the lowest possible fees so the fees aren’t eating into your gains over time.

MYTH #5: ​​To be a good investor, you have to be a math whiz and be able to do statistical analysis.

“If you’re looking at statistical analysis, you’re getting into trying to time the market, and that’s not investing, that’s day trading,” Cagan says. “However, there are some factors you need to understand so that you can compare different investments and make smart choices.”

With funds, you want to compare fees, so you’re comparing two numbers to one another. If you’re looking at individual stocks, you’re going to want to look at some different parameters. Here they are! 

MYTH #6: ​​It’s ok to get started investing, even if you don’t have any goals.

Cagan says that when she asks clients why they want to invest, many times their answer is that they want to make more money. “And I say, ‘Well, what do you want to use that money for?’ Wanting more money isn’t a goal.”

For example, if you know you want to buy a house in 10 years, you would use different investments than you want to retire in 40 years, or you want to pay for your kid’s college in 20 years. 

Knowing what you want to use that money for, and setting those goals, will help you figure out the best investments for you.

Myth #7: ​​To be a good investor, I need to know how to pick individual stocks.

“For many people, investing in mutual funds, index funds, and ETFs are going to be a better choice than buying individual stocks,” Cagan says. “When you buy into a fund, you have a whole portfolio at once. Even a really narrow fund is going to hold hundreds of stocks, so the chances of all of those stocks tanking at a time is a lot lower than the chance of one company tanking at a time”

Once you have a stronger grip on the ins and outs of the stock market, then picking individual stocks can be a really good idea. Cagan compares buying an individual stock to buying a car: “If you’re going to buy a car, you would do this much research,” Cagan says “If you’re going to buy a company, you want to do that much research, too.”

Myth #8: I should start investing before I pay off my high-interest debt. 

“If you have debt with a rate of more than 10%, you should pay that off before you start investing,” Cagan says. “However, with lower-interest debt such as a mortgage, a car loan, or a student loan, you should make your minimum payments but start investing before you pay it off in full because you can make more money over time.”

HerMoney CEO Jean Chatzy also adds that you should always be grabbing the maximum amount of 401(k) matching dollars that you possibly can. “When you’re looking at a match in a 401(k), that’s a 50 percent return on your money. I make an effort to pay off my credit card debt, so that I know that I am paying [at least the] minimums on these high-interest rate debts, but grab at least some of those matching dollars at the same time, because they’re so valuable,” Chatzky says.

Myth #9: I can’t invest with my conscience. If I only choose funds and companies that align with my values, I won’t make money.

This is a myth, because socially responsible investing (SRI) funds show similar returns to other funds, and there are many options for investing in a way that speaks to your conscience. 

“You can choose based on what is important to you, Cagan says. “You can choose clean air, clean water, or women in leadership. You can avoid funds or companies that have guns or tobacco, and still do really well with your investments.”

She warns that you still need to do your homework to make sure the investments you’re choosing actually align with your values. “There is a lot of greenwashing that goes on where companies can act as if they belong in a socially responsible group, but behind the scenes, they’re still not necessarily doing things that a person would feel comfortable investing in,” Cagan says.

Myth #10: I don’t need to look at the financials for a company or a fund before I decide if I want to invest in that company or fund.

“No matter what you are going to invest in, you want to know what you’re getting into,” Cagan says. “For mutual funds, you want to look at the net asset value and what they’re holding. You can also look at whether they charge fees when you buy the fund and sell the fund, and what the expenses are within the fund. When you’re looking at individual stocks, the numbers are even more important because when you’re buying one company, there’s more risk of loss than when you’re buying 100 companies.”

Cagan also advises looking at a company’s balance sheet which will show you the total financial health of the company, and not just how they’re doing right now. For mutual funds, you want to know why they have weighted the holdings the way they do. 

“So anytime you’re picking anything to invest in, you want to do a little homework and make sure that you’re getting what you think you’re getting,” Cagan says.

If you want to learn more about investing and how to do your homework on stocks, join us every other Monday night for our InvestingFixx investing club where we we cover all things investing, and educate hundreds of like-minded women on how to play the markets.  We love seeing our community walk away with the confidence they need to speak the Wall Street lingo, and take control of their financial futures! 

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All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416


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