The 10 Myths of Modern Investing
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The 10 Myths of Modern Investing

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Does it seem like the financial world is upside down these days? It may seem as though the same things you used to do just don’t work that well any longer. At times like this, most retail brokers ...

Does it seem like the financial world is upside down these days? It may seem as though the same things you used to do just don’t work that well any longer. At times like this, most retail brokers offer familiar wisdom and advice that just isn't relevant in today’s world. Here are a few that need more scrutiny:

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The 10 Myths of Modern Investing Presentation Transcript

  • 1. The 10 Myths of Modern Investing By: 7 Tax Traps
  • 2. 1 “This is a good time to invest in the stock market.” Wow, now that’s surprising to hear from someone who makes money by selling financial products! Sort of like asking the barber if you need a haircut, eh? Ask the broker when it was that he warned clients that it was a bad time to invest. October 2007? February 2000?
  • 3. 2 “Stockson average make you about 10% a year.” Old news and numbers. The decades of the 80’s and 90’s saw average returns in excess of 12%. The last 50 years’ average is (arguably) 6-7%. Based on current valuations, we will likely see returns in the 4-5% range over the next decade of retirement. Which number do you want to depend on?
  • 4. 3 “Our economists are forecasting…” The brokerage community and ‘1-800’ boys love to brag about their highly paid economists. Ask them if the firm’s economists predicted the most recent recession – and if so, when? The track record of most economic forecasters is pretty poor. Their comments are typically loaded with a lot of ‘outs’ in case they are wrong. If the big boy’s economists are so smart, why have so many of their firms’ clients lost so much wealth? Hmmm.
  • 5. 4 “Stock market investments let you cash in on economic growth.” The Japanese have found that NOT to be true. Their economy has grown 25% in the last twenty years, yet their stock market has fallen 75%. Or how about your Wall Street investments that you made in 2000? The economy has grown, yet your investments are likely down.
  • 6. 5 “If you want higher returns, you have to take more risk.” The only way to earn higher returns is to buy stocks that are inexpensive relative to their future cash flows. Over the last twenty-five years, the FactSet Research utilities index has out- performed the Nasdaq index of small companies. Risk is not just volatility; it is the real chance you’ll lose principal.
  • 7. 6 “Stocks are cheap now, with aPrice/Earnings ratio of ‘x’…” This is a favorite of the old guard; it makes them sound so smart and market savvy. However, the truth is that by many measurements, P/E included, stocks are actually still pretty expensive relative to earnings potential.
  • 8. 7 “You can’t time the market.” Most often, the brokerage world relies on this mantra as an excuse for NOT paying attention to your investments. Pay attention to where money is being made in the various markets. Move to where the growth is actually occurring; it is measurable and identifiable if someone will put some energy into actually managing your investments.
  • 9. 8 “We recommend that you diversify across many mutual fund groups.” Most often, the brokerage world relies on this mantra as an excuse for NOT paying attention to your investments. Pay attention to where money is being made in the various markets. Move to where the growth is actually occurring; it is measurable and identifiable if someone will put some energy into actually managing your investments.
  • 10. 9 “This is a stock picker’s market.” Aren’t they all? Yet most stock pickers, individual or broker, consistently lose money. Most of your returns will come from being in the right asset group, and by having enough money in that group to actually make a difference.
  • 11. 10 “Stocks outperform over the long term.” How broad a statement is that? How long is long term? Does that even apply to your investment and retirement objectives? “Crazy horseless carriages, they’ll never catch on!” “Computers maybe have a world demand of five.” And now you have another ten statements that sounded right, but with time and experience have been proven really wrong. Maybe it’s time to make a few changes.
  • 12. 11 Want to learn more? Visit us at www.7taxtraps.com (or click this box) Learn about: The biggest mistakes before retirement. Tips to minimize the sting of taxes. Strategies to maximize your retirement income.