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4 unusual investing myths that people hold on to
By James Yeo
By definition, a myth is a “widely-held but false belief or idea”. And investing has more than its fair share of myths, given that it is an area not familiar to many people.
You would probably have heard of some common myths like “stocks investing is like gambling” or “lower-priced stocks are cheaper” and “only the professionals can make big money”, etc.
But rather than debunking these common misconceptions, we decided to go for a twist and answer four unique investing myths instead.
Myth 1: All advisers are the same
When it comes to planning your finances, it is often advised to seek the assistance of a qualified financial adviser. However, many people believe that all financial advisers are the same, waiting to rip you off and take your hard-earned money.
A classic example is asking a stockbroker whether you should be buying this hot stock you overheard in the news this morning. Of course he would encourage you to trade excessively to earn the underlying commissions!
That said, there are still many kind financial advisers or stockbrokers out there. Personally, I have found an experienced and reputable financial adviser who would go the extra mile for me and never once complains. As with all good things in life, you just have to put in the extra effort to look harder to find a good adviser.
Myth 2: Gold is the best investment
Throughout history, gold has always been respected for maintaining its value, and people often see gold as a form of hedging against geopolitical risks and inflation. It is also widely used as a tool for portfolio diversification.
However, I particularly loved this 2009 quote from Warren Buffett on his outspoken distaste for gold:
“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (NYSE:KO) will be making money, and I think Wells Fargo (NYSE:WFC) will be making a lot of money and there will be a lot … it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage.”
In short, investing in gold has no utility and more importantly, doesn’t pay any dividends. Furthermore, you cannot put a value to gold because the price is determined by supply and demand, unlike a company that has increased its earnings exponentially over the last decade.
Myth 3: Bonds are always safe investments
This is a very dangerous myth that you can find among potential investors. While government bonds like Singapore Savings Bonds and treasury bills have the strong backing from the government, this is not the case for corporate bonds.
A recent example is Swiber Holdings, which defaulted on their bond coupon payouts due to the difficult oil and gas environment. In fact, many people are left wondering if they can get their principal money back as Swiber has already been declared bankrupt!
Thus, it is important to do your own due diligence instead, such as checking on the credit rating, maturity and the company background.
Myth 4: Sell in a volatile market to protect yourself
It’s natural to panic and sell your stocks when the market takes a downward dive due to some global catastrophic events. Still fresh in my mind are examples like Brexit, or the Greece bailout.
However, many studies have shown that it’s best to stay invested in those times, as downturns are usually followed by even greater upturns.
According to JP Morgan’s Guide to Retirement 2016, an investor with $10,000 in the S&P 500 index who stayed fully invested between January 2, 1996 and December 31, 2015, now has more than $48,000 – a whopping 480-per-cent return.
On the other hand, an investor who missed 10 of the best days in the market each year ‘only’ has $24,070. A jittery investor who often jumps in and out of the markets due to panic and missed 30 of the best days lost money instead – $9,907 out of his initial investment of $10,000.
Conclusion
The four myths mentioned above are non-exhaustive and just the tip of the iceberg. In order to debunk all these investing myths, one should read more and do plenty of homework to eventually become successful investors in future. All the best to you!
James Yeo is a finance professional in the Asset Management industry for more than 6 years. He also founded an investment blog at www.smallcapasia.com which is dedicated to helping retail investors find winning stocks.
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