Successful investing is more of an art rather than a science since it is something that can’t be mastered by rules all of the time. Markets are always volatile and many factors can all work together to create a situation that might not be replicable the next time. And change is the only sure thing in investing and the markets. This also goes for those investing rules that may be gold today but may become a misconception tomorrow. Here are some of the current investing misconceptions that people should be aware about.
Buy And Hold Is Obsolete
There are a lot of investors who now believe that buying and holding on to a stock for the long term may no longer work. This may be due to the volatility of the current markets that has been brought about by the credit crisis and the eventual souring of the economy. Stock prices seem to change at a quicker pace from lows to highs that most investors may think that holding on to such stocks for long periods may not be a wise decision. That saying that buying and holding on to stocks is obsolete may not be entirely true.
Many investors believe that buying and holding stocks may only work in a more stable market where there is less volatility in terms of price changes. But this is not necessarily true. Buy and hold may still work especially for stocks of companies that show current continuing success and have a more stable financial foundation. There are still companies like Apple and Amazon that are prime candidates of stocks worth buying and holding on to by virtue of their current success.
It is a long standing rule for investors to diversify their portfolio in order to minimize their investment risks. But this rule may depend on one’s current investing status and may not work for everybody. Diversification would be something that would apply to those investors who already have their wealth made and only need to preserve them. But for those who are just starting to build their wealth, diversification may only reduce the rate of their wealth accumulation over a certain period. In such cases, it may be better for the wealth builders to concentrate on high performing investments if ever they wish to speed up their wealth accumulation. This may mean having to focus on certain investment areas rather than diversifying over several investment options.
US Bonds Are Risk Free
It has been a long held belief that investors can never go wrong with buying US bonds. They were once considered as virtually risk free investments. But the term risk free may only be a theoretical concept as it is also believed that all types of investments have certain levels of risks. And in the case of US Treasury bills and bonds, certain economic conditions may also contribute to the risks they hold.
With US bonds, it is generally believed that they are in considerable risk of losing money if interest rates rise. Returns for bonds usually move in opposite direction of interest rates. With interest rates showing that they are currently at historical lows, there is a good chance that they will rise up soon, which would then not work well with maturing bonds. In addition higher inflation rates can also eat up on the small percentage profits that most bonds may earn in exchange for their being considered as risk free investments.
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