Money buys happiness…. Or so people would like to think.
Imagine a world where that was true. What would it be like to toss a ‘happiness potion’ into your shopping cart with the rest of your groceries?
In the real world, however, money can’t buy happiness (ask any millionaire). It is a dangerous financial myth.
Some investment myths can trap you into losing money. If you fall into these “traps,” you can pay a huge financial price. But if you know what to avoid, you will hopefully be successful with your money.
Here are four common investment myths that could lead you towards common financial errors:
Assuming that money buys happiness
When the Beatles sang, “Money can’t buy me love,” they were right. The pursuit of happiness does not end with the accumulation of wealth. Don’t let your efforts to make money make you miserable, or get to the point where you damage family relationships. Being happy with your lot in life is far more important than the number of dollars on your net worth statement. Consider all the celebrities who had millions upon millions, but were miserable and self-destructive. Robin Williams summed up this situation, “Cocaine is God’s way of saying you’re making too much money.”
Believing in higher-than-market returns with lower risk
Bernard Madoff convinced his victims that he could ace the markets every year, regardless of the economic situation. But Madoff wasn’t the only fraudster who played this trick. His wasn’t the first and it won’t be the last Ponzi scheme that takes advantage of investors. So watch out for salesmen offering huge returns at low risk, and remember, if something sounds too good to be true, it probably is.
Rolling over short-term CDs for years
Literally speaking, certificates of deposit are as safe as “money in the bank.” But take a moment to reexamine that money-in-the-bank feeling of safety. For short-term needs, bank deposits make sense. But over a longer term, inflation turns this safe money into a potential trap. Don’t allow the bank to automatically roll over your CDs every time they mature. Review your options whenever a CD matures so you don’t fall into the trap of always investing your money at the lowest possible yield.
Buying on credit
We live in a plastic world, and calls to “buy it now, pay for it later” may sound very attractive. But beware. American consumers are becoming addicted to debt. Buying on credit has become the new norm. As a result, people have lost their homes, gone bankrupt, and destroyed their families because of too much debt. Avoid that trap by refusing to buy on credit, and certainly don’t apply for new credit cards that allow you to borrow more and more. If you don’t have the cash to pay for something now, just wait.
This post about the importance of avoiding traps and not believing in financial myths is based on one of the 64 strategies for building wealth that appear in Rich As A King. If you want to read the other strategies, get your copy of Rich As A King and learn more ways to improve your personal finance skills.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You A Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial Planner (CFP®).