In my 30 years as a financial advisor and the Founding CEO of a wealth management firm that oversees more than $3 billion in assets, I’ve noticed that more people lose money acting on erroneous beliefs than because of the markets performing poorly.

Here are the top 10 myths I’ve come across in investing that cause people to lose or earn less money, along with the ways to ensure that you don’t fall prey to any of them.

#1

MYTH

To be successful, you have to discover an investment that few others have noticed.

REALITY

Often the best investments are investments into boring companies. The search for an exotic company or investment often leads people to make bets on overly risky investments.

#2

MYTH

Investing in the stock market is risky.

REALITY

It’s only risky if you try to cherry-pick stocks or concentrate on only technology stocks, for example. The risk dramatically decreases when you buy a globally diversified index fund and have a 7+ year time horizon. Historically, this simple idea of spreading out your investments into many companies has delivered long-term inflation-beating returns for the last 100 years.

#3

MYTH

People who know investments have an advantage over a novice like me.

REALITY

The research shows that the opposite is likely true. Those who know investments tinker with their investments, concentrate instead of diversify, or try to time the markets, and often earn less than novices who buy thousands of companies and just hold them.

#4

MYTH

You have to keep changing your investments based on shifting trends.

REALITY

No one can predict the future and the evidence shows that changing your investments, often leads to less return and more taxes and fees. The best policy is to diversify and give it time.

#5

MYTH

When the markets are falling, keep your money in cash.

REALITY

When the markets are falling, the smart investor stays the course or actually buys more equities at lower prices. It’s virtually impossible to time the markets and know when to get out and when to get back in. Selling your investments because of fear usually leads to less money in the long-run.

#6

MYTH

If I haven’t already started investing, it’s too late.

REALITY

The best time to start investing is today. Given that no one can reliably predict the future and that markets have trended upward for the last 100 years, timing the markets is very risky. The evidence strongly supports investing today versus waiting for the market to fall. 

#7

MYTH

Investing is a way to get rich quickly.

REALITY

Patience is bitter, but its fruit is sweet. To take advantage of the magic of compounding and to reap the benefits of stock market investing, you have to have a 7+ year time frame. The more time you’re invested, the more money you’ll usually earn.

#8

MYTH

It’s safe to pick one stock that’s performed well over time and leave my money there.

REALITY

Any company can go bust at any time. Diversification lowers your volatility/risk and lowers the risk of losing money. Invest in thousands of companies around the world to get true diversification.

#9

MYTH

Taxes and fees don’t matter.

REALITY

Taxes and fees can be a significant headwind to reaching your goals. Keep your taxes and expenses low by choosing global equity index funds. The advantage of index funds is that they employ a buy and hold strategy that keeps your taxes and fees down. If you can control something with investing, you might as well do it and these two things can be controlled.

#10

MYTH

I should time my investments around world events.

REALITY

I’ve seen so many people lose money by pulling their investments when a certain politician was elected and getting back in when a different politician was elected. The forces of the markets are too numerous to consider, no matter how significant the world event may seem. Keep your money invested, enjoy your life, look at your portfolio only once a quarter, and stay invested all the time instead of timing the markets.

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