Financial misconceptions that can lead to costly mistakes

Canadians are facing a turbulent economic landscape marked by persistent inflation and the growing impact of tariffs.

Unfortunately, these financial pressures (and a lot of misinformation) have given rise to common money myths that, if believed, could lead to costly mistakes.

Let’s debunk some of the most prevalent financial misconceptions circulating right now and provide guidance on what you should (and shouldn’t) do to protect your financial well-being.

Myth No. 1: Keeping cash is safer than investing during economic uncertainty

Reality: While having an emergency fund in cash is crucial, hoarding excess money in a savings account can be detrimental during high inflation periods. Inflation erodes purchasing power, meaning money sitting in a low-interest account loses value over time.

What to do instead: Balance liquidity with smart investing. Consider diversifying a portion of your savings into assets that historically outpace inflation, such as equities, inflation-protected bonds or real assets like real estate. Even conservative investments can help maintain purchasing power over time.

Myth No. 2: The stock market is too risky right now—Better to wait until things stabilize

Reality: Market volatility is a normal part of investing. Trying to time the market often results in missed opportunities, as some of the biggest market gains happen during periods of recovery.

What to do instead: Stick to a long-term investment plan that aligns with your risk tolerance and goals. Consider dollar-cost averaging (investing a fixed amount at regular intervals) to mitigate risk and take advantage of market fluctuations.

Myth No. 3: Rising interest rates mean it’s time to pay off all debt immediately

Reality: Not all debt is bad debt. While high-interest consumer debt should be prioritized for repayment, low-interest debt, such as a mortgage or student loans, can still be managed strategically.

What to do instead: Focus on paying down high-interest credit card balances and variable-rate loans. However, if you have a fixed-rate mortgage at a low rate, you may be better off investing excess funds rather than making aggressive extra payments.

Myth No. 4: Canada’s inflation and tariffs will automatically lead to a recession

Reality: While economic uncertainty exists, global economies are resilient. Inflation and tariffs can contribute to slower growth, but they don’t necessarily signal an inevitable recession.

What to do instead: Avoid panic-driven financial decisions. Keep a diversified portfolio, maintain a strong emergency fund, and adapt your budget to rising costs while continuing to invest in long-term wealth-building strategies.

Myth No.5: The housing market is going to crash, so it’s better to wait to buy a home

Reality: While housing markets have cooled in some regions, a full-scale crash is not guaranteed. In fact, continued demand and supply shortages may keep prices from falling as much as some expect.

What to do instead: If you’re looking to buy a home, focus on affordability rather than timing the market. Ensure your finances are in order, interest rates fit your budget and your purchase is based on long-term stability rather than speculative price changes.

Myth No. 6: Inflation means you should stop contributing to retirement accounts

Reality: Inflation does increase the cost of living, but stopping retirement contributions can have severe long-term consequences due to lost compound growth.

What to do instead: Even small contributions to RRSPs, TFSAs, and employer-sponsored pension plans can add up over time. If possible, increase contributions to keep up with inflation and maintain your future purchasing power.

Myth No. 7: Tariffs on goods mean you should stockpile now before prices skyrocket

Reality: While tariffs can lead to price increases on certain goods, panic-buying often results in overspending and waste.

What to do instead: Be strategic about purchases. Stock up on non-perishable essentials if there’s a clear price increase coming but avoid hoarding items you don’t truly need. Compare prices and consider alternative brands or locally produced goods to mitigate cost increases.

During times of economic uncertainty, it’s easy to fall for financial myths that can do more harm than good. The key to navigating inflation and tariff challenges is staying informed, making rational financial decisions, and focusing on long-term stability rather than short-term fear.

By busting these myths and adopting smart financial strategies, Canadians can protect their wealth and future financial security.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.