To say the stock market is going through a time of uncertainty right now would be a serious understatement.
Just looking over the returns over the past week would make anyone feel anxious and nervous about what’s to come.
Here is how the Dow Jones closed the week of August 9th:
Monday Down 634 points – 6th worst point decline in stock market history.
Tuesday Up 429 points
Wednesday Down 519 points – 9th worst point decline in stock market history.
Thursday Up 423 points
Friday Up 125 points
In case you’re unfamiliar with how the stock market works, these are some very extreme swings in the market.
I don’t know about you, but I think it’s time we take a look at some of the myths that surround the stock market and investing.
I hear these comments all the time when I listen to the “gurus,” and it is very frustrating.
Just because something is repeated over and over again doesn’t make it true.
These myths need to be exposed for what they are: false statements that are not based on fact.
Myth #1: This is a good time to invest in the stock market.
No matter what is happening in the market, we will always hear someone say this is a great time to invest. This statement usually comes from stock brokers and money managers who make a commission on people buying and selling.
Quick question: When was the last time you heard a stock broker say it was a bad time to invest?
When the markets are dropping, we’ll hear people telling us it’s a great time to buy, because we’re buying cheap.
When the markets are rising, we’ll hear people tell us it’s a great time to buy, because the economy is getting better and we don’t want to miss out on the opportunity.
Myth #2: The stock market averages 8% a year.
You might have been able to average 8% or better in the 1980’s and 1990’s due in large part to the housing bubble and the dot com craze, but those days are long gone.
Just looking over the past 5 or 10 years we see a much different story.
For the last 10 years ending 8/1/11 the Dow Jones has averaged only 1.54% per year.
For the last 5 years ending 8/1/11 the Dow Jones has averaged only 1.81% per year.
This is quite a bit less than 8%.
Times have changed and we better start seriously questioning the advice we hear.
Myth #3: To protect yourself you should have a diversified portfolio of mutual funds and stocks.
What’s the point of diversification? To water down losses when certain sectors of the economy are down.
Have you ever stopped to think about the opposite situation? If being diversified waters down your losses, don’t you also think it will water down your gains?
Another thing to keep in mind; being diversified in the market, still means all your money is in the market.
Being truly diversified means you have money in the market, in real estate, in businesses, in savings, in money market accounts, etc.
Myth #4: If you want to earn higher returns, you have to take more risk.
Whenever I hear this phrase, I always think of Las Vegas. If we start making our investments sound like gambling, then we shouldn’t be surprised when we start to lose money.
This must also come as a surprise to Warren Buffett, and all the other millionaires/billionaires who make their money investing in the markets. They spend countless hours and manpower researching and studying companies before they invest.
Sure they lose money from time to time, but the fact that they’ve made billions of dollars in the market would strongly indicate they are not taking too much of a risk – they can’t be that lucky.
Myth #5: Stocks do better over the long term.
Define “long term.” What long term? Whose long term? Compared to what?
Oftentimes this myth is stated with no discussion of the above questions.
My point in all this is not to scare anyone or getting people worried about the future. My point is that the market has changed and things are different now.
Some people will hold on to past beliefs and struggle during this time of change. Others will question the old way of thinking and make the necessary changes to move forward.
If you’re tired of worrying about your money and what the stock market is going to do next, now may be a good time to re-evaluate your
current situation.
If you would like a second opinion on your finances and the strategies you have been using, feel free to contact me anytime. My consultations are always free, and I will not pressure you into any investment you don’t fully understand and desire.
*The articles on this blog are for education and entertainment purposes only and should not be taken as financial advice. I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, so it may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.