Top 10 Investing Myths and How to Avoid Them

Investing is hard. No, wait. Investing is easy. If investing were easy, why did the average investor book annual returns of just 2.6% on a stock and bond portfolio over the decade to 2013?  

Because the average investor constantly fights their better judgement and submits to investing myths widely held as conventional ‘wisdom’. 

Use a rational and disciplined investment strategy rather than falling for the 10 investing myths here and you’ll find that meeting your long-term goals is actually pretty easy.

1: Follow stock market analysts and those appearing in the financial press to spot investment winners

Investors tune in religiously to their favorite stock-picking show or follow tips by “noted” analysts on the internet.  

There are two problems with this myth. First, understand that analysts on TV may have different reasons for pitching a recommendation. The financial press, TV and internet, is a business and must constantly entertain its audience with new ideas. 

2: My 401(k) and other retirement investments are safe because they are in mutual funds

Just because your money is in an account marked for retirement and invested in mutual funds doesn’t mean it’s safe from market turmoil. 

If the mutual fund is focused on stocks, it is still prone to huge losses when the market crashes. One in five people have 80% or more of their retirement money in stocks, whether individual stocks or mutual funds holding stocks. 

3: Picking funds that have done well means they should do well in the future

Past performance is displayed prominently and used as a major selling point for managers. 

Show people that your mutual fund has ‘beaten the market’ over the last few years and they’ll believe you can do it again. Investors are persuaded to sell out of their current investments to free up cash to invest in these high-flyers. 

The usual response I get to this is that American companies book sales overseas and provide all the international exposure an investor needs. Foreign sales at S&P 500 companies are just 33% of their total sales.

4: U.S. companies are all the international exposure I need

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