I’ve been in the financial business for quite some time now, and over the years I’ve heard, and been taught to say, some pretty crazy things to prospects and clients regarding investing – many of which have turned out to be completely wrong, or at the best, purposefully misleading.
Like many advisors at Fortune 100 companies, I was taught that the status quo had to be maintained at all costs. There was no explanation for this except that, “This is the way it’s always been done.” That’s not a good answer.
In all fairness, we didn’t know what we didn’t know. Moving from a Fortune 100 company to a boutique SEC-registered investment company and taking on a fiduciary obligation required me to think critically about what I’d been taught and adjust my thoughts and actions to best serve my clients.
Below are 7 Magnificent Lies you’ve been taught about investing.
- “Slow And Steady Wins The Race” or “The Key To Financial Success is time in the market, not timing the market.”
No, not quite. Timing is critical. Remember the first rule of investing: “Buy Low & Sell High”. You can’t do that with buy-and-hold investments or target date retirement plans. You must ride the market up and down over the course of many years, at the mercy of the markets. We don’t believe you should do that. Active management allows your advisor and money managers to pivot your investments to safer positions by eliminating underperforming investments or moving your assets to “safer” investment options with less volatility (cash/money market funds/government Treasurys, etc.) when markets are choppy or declining.
Remember the story of The Tortoise And The Hare? Let’s break it down: The hare; famous throughout the forest for his speed, challenges the tortoise; known for his slow steady pace and perseverance, to a race. From the start, the hare easily takes the lead. He outruns and outpaces the tortoise so quickly that he decides to take a nap. While the hare naps, the dogged and tenacious hare passes him, trudges on to the finish line, and wins the race.
The lesson is two-fold. It teaches the importance of perseverance in the face of almost certain defeat, and it teaches that the hare would have won if he wasn’t so lazy!
Don’t hire a lazy advisor. Hire a fiduciary who can provide active, tactical management. No sleeping on the job.
- “Opportunity Knocks But Once”
Whoever coined this phrase must have lived under a rock! Some advisors and brokers use this phrase to goad people into investing now. If the markets or even an individual company are doing well people notice and jump on the bandwagon. We call this “FOMO” – Fear Of Missing Out – and it’s a dangerous thought. Most people feel FOMO when an investment opportunity finally makes the news. That’s potentially the worst time to invest because the chances of that specific security reaching a very “oversold” level can trigger a sell-off, and then the investment loses value. Do not be fooled by emotion. The first word in “FOMO” is FEAR. Fearful investing is poor investing. There will always be new opportunities.
- “Gold Is A Safe Investment” or “If Everything Crashes, Physical Metals Will Act As My Currency”
Nope! Gold is one of the most volatile securities available. It goes up and down… a lot. Diversifying your portfolio with some precious metals exposure can be wise, but holding physical gold/silver is expensive, tedious, and can be dangerous. If the economy collapses and money (bills, notes, coins, etc.) become worthless, you’re not going to get far with gold bullion, a jeweler’s scale, and a metal file. Ask your advisor if investing in precious metals is right for you, and what your investment options are.
- “Investing Is Only For The Wealthy”
It isn’t. Investing is for people who want to be wealthy as well as those who already have money. A $2,500 initial investment can go a long way. I have to mention that investing involves the risk of loss while offering potential for profit if it’s managed wisely. Your risk tolerance and risk capacity are important considerations when choosing an investment plan, so ask an advisor to help you determine what’s best for you.
- “Bonds Are Safe Investments”
“Safe” is subjective, and the economic conditions following the pandemic proved bonds were anything but safe. Stocks and bonds have historically been used to provide diversification and inversely correlated returns within portfolios. In other words, when stock values go down, the value of bonds should rise. You’ve heard of the famous 60/40 portfolio. It’s 60% stocks and 40% bonds, and we believe this old standard is broken.
In fact, we saw stock and bond values moving together in 2022. This positive correlation devastated many 60/40 portfolios and damaged the performance of target date retirement plans. In 2022 the S&P 500 fell nearly 27% while Morningstar’s U.S. Core Bond Index lost 12.9%.
Bonds aren’t always “safe” and when they move in tandem with stocks, they can be a hazard. Am I advocating eliminating bonds from portfolios? No. Certainly not. Am I suggesting reducing bond exposure? Yes. Besides bonds I like to provide additional diversification to my clients’ portfolios by using alternative investments, or “alts” as they’re often called. “Alt” investments strive to provide opportunities with very low correlation to stocks and bonds. They can help hedge portfolios against broad-market losses.
- “You Own The Money In Your Traditional 401(k) or IRA”
You don’t. It’s true. Traditional (not Roth) 401(k)’s and IRA’s are the joint property of you and… you guessed it: the government. Because contributions to these plans usually provide immediate income tax benefits and the plans grow tax-deferred until you take income, the government legally owns a portion of and has a vested stake in your traditional 401(k) or traditional IRA. You will eventually have to pay taxes on the gains so the government owns enough of your investment to satisfy the eventual tax obligation. The government can also garnish these plans for a variety of reasons, including fines and outstanding tax liabilities.
There is a solution. Roth accounts belong to you. You can fund Roth IRA’s and Roth 401(k)’s (if your company offers those) with after-tax dollars. You pay up front, and the investments grow income tax-free. Distributions aren’t taxed.
- “You Can’t Make Money In A Bear Market”
This is one of the biggest lies you’ll ever hear about investing. You can make money in a bear market.
The Great Recession of 2008 taught us a lot of valuable lessons. Most of us learned that our investments weren’t as safe as we thought. We helplessly watched our hard-earned money go down the drain. Market declines are an ever-present peril for buy-and-hold investors, and the results of bear markets can be financially catastrophic.
Another lesson the Great Recession taught us was that the uber-rich somehow either: a) Didn’t feel the impact of the decline as strongly as the rest of us, or b) Became “uber-richer.”
How did they pull that off while the middle class suffered so much? I’ll tell you what I believe. It was active management combined with smart, balanced, portfolios that provided downside protection. Furthermore, many successful investors used “long/short” investment models. Those can be profitable in positive and negative markets. Like most investment models, they’re designed to take advantage of gains during bull markets. Unlike most investment models, they will take inverse positions during declining markets. That is to say, they bet against the market. They are designed to be profitable regardless of the direction of the markets.
Not long ago, only the very wealthy had access to that kind of sophisticated active management, while middle-America had fewer, poorer choices… and suffered because of it. Global View Capital Advisors was created, specifically, to right that wrong. We bring active management to everyone.
Well, now that we’ve identified seven common investment lies to be aware of, let’s wrap this up with a truth. At Global View, we believe smart, sophisticated active management is for everybody no matter where you are at in your financial journey, whether you’re considering your first investment account or already have years of experience. At Global View, it’s not just about how much you make (although that’s very important, too) … it’s about how much you keep.
This article represents the personal opinions of the advisor and author only, and does not necessarily represent the views of Global View Capital Advisors as an organization.
