The world keeps changing, politics and social movements emerge, the stock markets fluctuate and a lot of our preconceived notions continue to be challenged. However, some things don’t seem to change, including myths about the markets and investing. Let’s take a look at some of the ones that still exist.
It’s true that it’s usually considered wise to diversify investments. However, it’s generally a myth that stocks rise when bonds fall and vice versa. The reality is that, overall, both stocks and bonds increase in value over the long haul, and there are periods when they both rise and fall at the same time.1
Should this type of knowledge change the way we build a portfolio? Not at all. When you work with an experienced financial advisor, you’ll find that he or she is more concerned with the direction you are moving in, not the stock market. An asset allocation strategy and a portfolio of financial products should be designed to support an investor’s individual goals, not chase market returns. If you’re looking for advice on how to construct a portfolio to reflect your goals, risk tolerance, and investment timeline, please give us a call. That’s what we do.
Another commonly accepted phenomenon is the way we define a bull or bear market — we base it on a percentage of rise or fall in performance. However, at least one market analyst believes that valuation of markets isn’t the critical factor for a bull or bear market, but rather the direction in which earnings ratios are moving.2
Another common myth relates to politics. While politicians often take credit for rising stock markets, their actual impact is more often seen on individual stocks, such as when a president targets an industry for reform or support.3 Ultimately, it’s important for investors to stay focused on their own financial goals, not on how markets will react to election outcomes — because those responses are usually short-lived.4
There’s also the market cliché, “Sell in May and go away.” While markets do tend to slow down during the summer season (since 1950, the market has posted a mean return of 1.4 percent from May through October, compared to 7 percent for November to April), pursuing this strategy is a form of market timing.5 Another way to look at low-price periods is as an opportunity to buy low and wait for the possible rising tide.
And finally, the myth that men are better investors than women is just that — a myth. In fact, a new study from Fidelity reveals that women not only save more than men but their investments earn (slightly) more on an annual basis.6
1 Ben Carlson. Bloomberg. Sept. 28, 2017. “Some Market Myths Hurt Investors.” https://www.bloomberg.com/view/articles/2017-09-28/some-market-myths-hurt-investors. Accessed Dec 29, 2017.
2 Barry Ritholtz. Bloomberg. Aug. 14, 2017. “How to Spot a Bull or Bear Market.” https://www.bloomberg.com/view/articles/2017-08-14/how-to-spot-a-bull-or-bear-market. Accessed Dec. 29, 2017.
3 Ryan McQueeney. Nasdaq. July 21, 2016. “Here’s How Presidents and Elections Affect the Stock Market.” http://www.nasdaq.com/article/heres-how-presidents-and-elections-affect-the-stock-market-cm652950. Accessed Dec 29, 2017.
4 Ben Carlson. Bloomberg. Sept. 7, 2017. “Markets Don’t Care Who the President Is.” https://www.bloomberg.com/view/articles/2017-09-07/markets-don-t-care-who-the-president-is. Accessed Dec 29, 2017.
5 Michael Brush. MarketWatch. May 12, 2017. “Opinion: Believing these 5 stock market myths will cost you money.” https://www.marketwatch.com/story/believing-these-5-stock-market-myths-will-cost-you-money-2017-05-12?siteid=rss&rss=1. Accessed Dec 29, 2017.
6 Chris Taylor. Reuters. June 7, 2017. “Why women are better investors: study.” https://www.reuters.com/article/us-money-investing-women/why-women-are-better-investors-study-idUSKBN18Y2D7. Accessed Dec 29, 2017.
Content prepared by Kara Stefan Communications
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