Tuesday, January 12, 2016

Debunking Some Of The Biggest Investment Myths – Spend A Successful 2016

The entire financial market has gone through a wild ride throughout 2015 and experts suggest that the market is going to remain the same in 2016. Stocks, as seen by Standard & Poor’s 500 Index, had hit a record high level in May even amidst consistent economic growth and then plummeted by 10% around August due to growing concerns of sluggish economic growth. Bonds, on the other hand, again made us believe in the view that yields would rise. But instead of rising, they fell further and remained low due to the reluctance of the Fed to increase interest rates. The commodity market even hit the edge as the major commodity indexes dropped down to 13 year low level in July, 2015.

Investment Myths

So, after going through the above statistics, you must be wondering what the financial market has in store for us in 2016. According to the investment experts and the gurus, what are the best and the worse investment ideas? While some experts and analysts are bullish about closed-end bonds, financial and energy-efficient stocks and master limited partnerships, some others are bearish about long-term Treasury bonds and other biotechnology stocks. Despite so much information on investment assets, there are still people who believe in some of the biggest myths about investment. What are they? Read on to know about them.

Don’t let investment myths to play on your hopes – Be aware of them

They say investing is easy! But if it were so easy, why did the average investors in 2013 book yearly returns of only 3.6% on a bond and stock investment portfolio? This was because the average investor continuously fights against their personal judgment and gives in to the investment myths which do nothing but plays with the hopes of the investors. Here is a list of the most common investment myths which you should know of and a short insight into how you can avoid them.

Myth #1: You should follow stock market analysts and your favorite investment show

Truth: Investors usually tune in to their favorite show on stock investment and tend to follow the tips that are cited by the analysts and experts either on the internet or on the television. The idea behind these experts is that they have already spent a portion of their life handling such reports and they know how to choose the winners. Firstly, you need to understand that the TV, internet is a business and they will mostly show you things that entertain the viewers. Hence, the recommendations might not be appropriate for your financial situation. So, steer clear from such ads and shows.

Myth #2: My 401(k) and other investments are safe as they’re in mutual funds

Truth: Only due to the fact that your money is within an account which is marked for retirement or invested in the mutual fund market, doesn’t mean that it is safe from the turmoil of the market. Remember that when the mutual fund is more concentrated on the stocks, it is prone to heavy losses with the crash of the market. 1 among 5 people has 80% or even more of their post retirement money in the form of stocks. Take little risk in your retirement investments. Even when you have more than enough time left to retire, try to weigh your investment portfolio heavily with bonds and different other assets.

Myth #3: Choosing the funds which performed well in the past means they’ll do in the future

Truth: Yes, it is true that past performance of an asset is used as the major selling point for the managers. You just have to show people that the mutual fund you’re choosing has stood out in the market over the last few years and the investor will believe that it can stand out again in the future. This way people make mistakes of choosing such assets without knowing whether or not it is appropriate for their portfolio. You should always remember that past performance doesn’t guarantee future results. So, resist the temptation of giving in to this myth.

Myth #4: The more you study about the market, the better you will perform

Truth: Although it is true that you need to have an idea of what the financial market is doing, the most successful investors study about the companies that they buy and about themselves more than what they study about the market. You can rather spend time studying about the reputable investors like Warren Buffet. He provides his readers with some master of annual reports and asks them not to always follow what the investors suggest. The investors should also study about the companies in which he is investing. 

Myth #5: You need a lot of money to make profits

Truth: Previously there was a time when the stock brokers wouldn’t even attend your calls if you couldn’t give them thousands of dollars. Did you know that these days it is even possible to set up a brokerage account and invest a portion of it at a time? The thought that you need enough money to make profits in the investment market is a myth and you actually can start off with very little fund. Even a modest account with very few cash can result in a big investment while retirement. So, you can start off even when you don’t have enough funds.

Myth #6: International investing is risky, one should stay domestic

Truth: This is a global economy and it is risky enough not to invest a portion of your portfolio internationally. The average American holds up to 75-80% of the stock investments within the US despite the US representing less than 50% of the entire global stock market. The accepted thinking should be restrained to not more than 10-15% of your entire investment portfolio. 

Therefore, if you are into the market to invest your dollars, you shouldn’t believe in the age-old investment myths. Ensure knowing the truths associated and try to base your decisions on them. 


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