While I will be the first to admit that many fortunes have been made by investing in stocks experience has taught me that not everything you hear or read about investing is necessarily factual. In this article I hope to point out some of the more common Myths so that you don't fall prey to your broker the next time he pulls one of these lines on you. Here are 3 common Myths about the market that your broker may not want you to know.Here is stock market myth number one and I hear this one alot. I often ask my clients what they expect their returns on their investments to average over the next 10, 15 or 20 years until retirement and here is what they say. "Stocks on average will get you a 10% to 12% return over the long haul right?"Have you ever heard this one? If so here is the truth. This average is based on past history that dates all the way back to the 1800's and the data is full of holes. If you look at a more recent and more accurate time table let's say the last 40 years starting in 1970 and you average out the gains over that time you will find out that over the last 40 years the markets real return was actually only 7.36% per year and that does not account for any fees, loads, management costs or commissions that you pay your broker. A far cry from 10% to 12% and many economists are predicting much worse returns in the next 10 to 15 years.Stock market myth number two is... "You can get a much better return with much less risk if you diversify" Now don't get me wrong diversifying is actually a really good idea the problem with this myth is that the next suggestion out of your brokers mouth is to buy a bunch of mutual funds with different names and styles. This is really just another marketing trick to make you feel better about your investments. Everyone of these options are still equities and investing in different types of the same class of investments is not really being diversified. If you really want to diversify you need to invest in other things besides stocks, bonds, and mutual funds as these are all equity investments. To truly diversify and lower risk you need to expand beyond what your broker can sell you and invest and save in cash, precious metals, real-estate, commodities, investment grade insurance contracts and annuities. These are all examples of non-equity investments that would actually keep your portfolio diversified and potentially lower your risk and increase your returns.And now for myth number three and that is "For you to get better returns you must always take on more risk" This simply is not true. Investing does not have to be all about taking risks and for many people risking their money is a horrible idea. Why? Many of the Middle American families that I work with can't afford to lose any money ever. They just don't have any money to lose. Wouldn't it make more sense to at least investigate strategies that remove risk from your portfolio instead of chasing after illusive stock market gains by taking on more risk. In many instances I have been able to show my clients that there are safe alternatives to stock market investing that can actually, remove risk, guarantee principal, guarantee interest, guarantee income for life, increase accessibility to their money, and create satisfying gains that help them reach their goals while removing all risk. What I am talking about is a strategy that I call Indexing (and no it's not about using indexed mutual funds). With indexing your returns are based on an index like the S&P 500 and if that index goes up you get the lion share of the gains, but if that index loses money you get to keep 100% of your principal. Does this limit your gains, you may ask? Yes, somewhat, but it completely eliminates all of your losses. How much farther ahead would you be right now if you had no stock losses over the last decade? It can be done and in the long run it can even out perform much riskier investments. The bottom line is more risk does not always equal more long term gains, sometimes it equals a complete decimation of your principal because you took a chance you didn't need to take.Believing in these stock market myths can be dangerous to your wealth. Be on guard. You work hard for your money don't be fooled or tricked into taking on more risk than is necessary to get to your goals. Make sure your investments are truly diversified and don't get caught up in unrealistic expectations that don't factor in recent data or fees. My advice is to find an advisor that is truly looking out for your best interest and one that is forward thinking and not afraid to challenge conventional wisdom.
