Don’t Be Fooled by These 3 Investing Myths

I’m giving a talk today at the Commonwealth Business Experience conference, which, as usual, has been just wonderful. But as I woke up this morning, to go over my presentation one more time, I realized that it’s April Fools’ day.

Not, perhaps, the best day to give a presentation, but it does give me a certain amount of wiggle room for anything I might get wrong . . .

Traditionally, the day has been celebrated by playing tricks and practical jokes on unsuspecting people. With a six-year-old at home, I’m not entirely sad to be traveling today, but April Fools' did get me thinking about certain tricky investing myths we might fall for. Here are a few:

You can invest on your own.

This isn’t a lie—you certainly can—but it’s far from easy. According to hundreds of ads out there, investing is no more complicated than a video game. The fact is, it requires analysis, thoughtfulness, and an appreciation for time horizons, all of which are antithetical to video games. Even if we run with the game analogy, in investing, you’re not going up against your friends but against the whole world. Would you really want to play Call of Duty all day against the best gamers in the world with your savings on the line?

Stocks go up if you wait long enough.

Again, this isn’t a lie, but it is misleading. The returns you should expect vary depending on when you buy. What matters is not whether your investments increase in value, but by how much and over what time period. Diversification can help you ride out the periods when stocks don’t go up, or don’t go up enough. But assuming that the stock market will bail you out, because it always goes up, can result in a big April Fools’ surprise years later.

Investing will enable you to meet your financial needs.

This point is closely related to the last one. Investing is necessary but not sufficient. You also need to save. For investors who start late, save little, and expect double-digit gains to bail them out, all that can help them is luck. Save early, save often, and, yes, invest the money—but you have to do the first two before you get to the third.

“It’s not what you don’t know that kills you; it’s what you know that isn’t so.”

April Fools’ jokes often play on our assumptions of what is reasonable, what we expect to be true, and what we want to be true—and then turn all of those assumptions around. The myths I mention here play off of ideas we want to be true but aren’t.

I could add many items to this list, but just remember this: When you hear something that you really think should be true, consider what might happen if it isn’t—and then go and check.

Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.