Investment strategies seem to invite myths of all kinds. As a result, you as the investor are left wondering what to believe or not. Let’s go over some common myths that are out there about investing and make sense of each one.
Myth #1: Bonds are Safe Investments
This one isn’t entirely false, but it’s also pretty misleading. Bonds have a reputation of being boring investment vessels used by only the most conservative of investors. Not always so. Yes, they don’t usually have the high returns of stocks, but they don’t make you risk everything in the process. That said, they don’t come without their degree of risk. From U.S. Treasury securities tojunk bonds, maturity is a risk factor that can’t be ignored. There is an inverse relationship between price and yield within rising interest rate environments, which can be really risky if you don’t do your research.
Myth #2: All Advisors are the Same
Not so. Because there are varying degrees of professional experience, not all financial advisors are created equal. You’ll find that some are financial planners but they don’t handle taxes. Still others are strictly stock brokers but won’t touch financial planning. There are professionals who do it all but it will all depend on what your needs are.
Remember,brokers are held to suitability standards when they sell a particular stock to a client, considering anything from income totime horizon to risk tolerance, according to Bankrate. If your investment adviser says he is a fiduciary, hemust adhere to a stricter standard than mere suitability, which means he must act in your best interests at all times in the legal sense. If you suspect this agreement has been compromised, call a securities fraud attorney right away.
Myth #3: Aggressive Stocks Lose You Cash
Yes and no. You will diminish your purchasing power drastically if you continually take the safe road, fail to take risks and only earn less than the rate of inflation. That said, it’s wise to limit the amount of aggressive investments you make so you don’t lose it all in times of instability.Being aggressive means you increase your purchasing power and add to your principal over the years.
Myth #4: 5-Star Bonds are Guaranteed
Untrue. While one fund may show top ratings from a mutual fund rating and consulting company, consider that these numbers are solely based on past performance. Bottom line is past performance does not guarantee future results, with research failing to corroborate a link between historically top-performing funds and future success. Yes, take a look at the star rating but don’t base your whole decision on it.
In the end, it’s important to stay on top of your investments and your stock broker, while making the commitment to being an educated investor.