Investing mistakes don’t always come from taking too much risk. Sometimes they come from ideas that sound perfectly reasonable.
Wait for a better time to invest. Keep money in cash because it’s safe. Own a bunch of funds so you’re diversified. Move mostly out of stocks when retirement gets close.
Each of those ideas has some logic behind it. But taken too far, they can quietly hurt your long-term results.
Here are eight investing myths worth questioning.
1. There Are Good and Bad Times To Get Into and Out of the Market
Of course there are times that, in hindsight, would have been fantastic moments to buy or sell stocks. The problem is knowing them in advance.
It’s easy to look back at a market crash and think you should have sold beforehand. It’s just as easy to look at the bottom afterward and think you should have bought aggressively. Real life doesn’t work that way.
When stocks are falling, the news usually looks terrible. When the market begins recovering, the news may still look terrible. By the time things feel safe again, stocks may already be substantially higher.
The same problem applies when markets are setting records. Investors sometimes hesitate to invest because stocks seem expensive or because a correction feels overdue. But markets that rise over long periods naturally hit new highs over and over.
Trying to time the market means making multiple correct decisions: when to get out, when to get back in and sometimes when to invest money you’ve been holding on the sidelines.
For long-term investors, consistently investing and staying invested is generally a more dependable strategy than trying to identify the perfect moment.
2. Cash Is Safe
Cash feels safe because its value doesn’t bounce around every day.
If you have $20,000 in a savings account today, you won’t wake up tomorrow and discover that it’s worth $17,000. That stability makes cash an excellent home for an emergency fund and money you expect to need soon.
But cash has its own risks.
The biggest is inflation. Your account balance may stay intact while the purchasing power of that money slowly declines. There’s also opportunity cost. Money you keep in cash for 10, 20 or 30 years doesn’t get the same opportunity to participate in the long-term growth of stocks.
That doesn’t mean every dollar should be invested. It means “safe” depends on what the money is for. Cash can be very safe for next year’s expenses and a poor choice for money you won’t need for decades.
3. Bonds Are Safe Because They Don’t Lose Value
In 2022, many investors learned the hard way that bonds can lose money.
Broad bonds fell about 13% that year. That was especially jarring because bonds are generally thought of as the safer part of a portfolio. But 2022 was also highly unusual.
Going back to 1928, broad bonds posted a negative annual return in only 11 out of 98 years. And most of those losses were relatively small. Before 2022, the worst annual decline was just 2.9% in 1994.
So bonds have historically been much more stable than stocks. But stable isn’t the same as guaranteed.
One major risk is rising interest rates.
Suppose you own a bond paying 3% interest and newly issued bonds begin paying 5%. Your 3% bond is suddenly less attractive. If you want to sell it before maturity, its price generally has to fall enough to compete with the newer, higher-yielding bonds. That is essentially what hit bond investors so hard in 2022, when interest rates rose rapidly.
There is an important distinction, though, between an individual high-quality bond and a bond fund. If you buy an individual Treasury bond and hold it until maturity, temporary price swings along the way don’t change the amount the government promises to repay at maturity. A bond fund, on the other hand, has no single maturity date, so its value rises and falls as the prices of the bonds it owns change.
Bonds still play an important role in many portfolios because they have historically been much less volatile than stocks and can provide income and diversification. Just don’t mistake safer for can’t lose value.
4. Owning More Funds Means I’m More Diversified
If two funds are good, wouldn’t 10 be even better? Not necessarily.
You might own an S&P 500 fund, a large-cap growth fund, a technology fund and several actively managed U.S. stock funds and discover that many of them own the same companies. You have more funds, but not necessarily more diversification.
Diversification comes from owning different types of investments, not simply owning more investment products. A relatively simple portfolio of broad-market stock and bond funds can provide exposure to thousands of securities.
Meanwhile, a complicated portfolio with 15 funds can still be heavily concentrated in the same corner of the market.
More investments can sometimes mean more diversification. But complexity by itself is not diversification.
5. Sophisticated Investors Earn Better Returns
Investing can be incredibly complicated.
You can trade options, analyze individual stocks, invest in private markets, study economic indicators or build elaborate portfolios with dozens of holdings. But complexity doesn’t automatically lead to better results.
A person who buys a few low-cost diversified funds, keeps adding money and leaves the portfolio alone may outperform an investor who constantly trades, analyzes and adjusts.
That’s partly because sophistication can create opportunities to make more mistakes. Frequent trading can increase costs and taxes. Concentrated bets can increase risk. Constantly changing strategies can lead investors to chase whatever recently performed best.
There is nothing wrong with understanding investing at a deep level. The myth is believing that successful investing has to look complicated.
Sometimes the hardest investing skill is simply resisting the urge to do something.
6. If My Portfolio Didn’t Beat the S&P 500, I Did Something Wrong
The S&P 500 is one of the most widely followed investment benchmarks in the world. But it isn’t the appropriate measuring stick for every portfolio.
The S&P 500 represents large U.S. companies. If your portfolio also contains bonds, international stocks, small-company stocks or other assets, it won’t behave exactly like the S&P 500, nor should it.
Suppose a retiree has 60% of a portfolio in stocks and 40% in bonds. During a strong stock-market year, that portfolio will probably trail the S&P 500. That doesn’t mean the investor made a mistake. The bonds were included for a reason: to reduce risk and provide stability when stocks fall.
A good portfolio should be judged against what it was designed to accomplish, not against whichever market index happened to perform best. Otherwise, investors can find themselves constantly chasing yesterday’s winner.
7. Professional Investors Know Where the Market Is Going
Wall Street employs brilliant people with access to enormous amounts of information. They analyze earnings, interest rates, economic data, valuations, consumer behavior and just about everything else that might influence investments. That doesn’t mean they know what the stock market will do next; there are simply too many variables at play.
Unexpected economic data, wars, policy changes, corporate surprises and investor psychology can quickly overwhelm even the most carefully constructed forecast. Professional analysis can still be valuable. There’s a big difference, though, between understanding risks and reliably predicting short-term market movements.
Be especially skeptical when someone sounds certain about where stocks will be in six months or a year. Nobody gets a clear view of the future just because they work on Wall Street.
8. Once I’m Near or in Retirement, I Should Own Few or No Stocks
This myth sounds especially reasonable.
You’ve spent decades accumulating money. Retirement is approaching. Why keep taking stock-market risk?
Because retirement may last a very long time. Someone retiring in their mid-60s could need their portfolio to support them for another 25 or 30 years, and sometimes longer.
Over that kind of time horizon, inflation becomes a serious risk. If your cost of living rises while most of your money sits in very conservative investments, your purchasing power can slowly erode.
Stocks provide no guarantee of higher returns, and retirees generally shouldn’t take the same level of risk as someone decades away from retirement. But eliminating stocks entirely introduces another kind of risk: not having enough growth.
Retirement usually calls for changing your investment mix, not abandoning growth altogether. The right balance depends on how much you have, how much you spend, your other sources of income and how much volatility you can tolerate. But retirement is not the end of your investing time horizon.
Final Thoughts
The common thread among these investing myths is the idea that there’s a perfect way to invest — a perfect time to buy, a perfect mix of investments or a perfect strategy for avoiding losses.
In reality, investing involves trade-offs. Cash provides stability but can lose purchasing power to inflation. Bonds can reduce volatility but still decline in value. Stocks offer greater long-term growth potential but come with larger short-term swings.
The goal isn’t to eliminate those trade-offs. It’s to build a strategy that fits your time horizon, financial goals and ability to tolerate market declines and then stick with it.
For many people, that means keeping an emergency fund in cash, investing long-term money in a diversified portfolio, keeping costs low and resisting the temptation to make major changes based on the latest market forecast or headline.
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