8. Myth: Market timing works. People assume this is what the experts do. The smart money is constantly in and out of the market.
Reality: It is not possible to consistently time the stock market because you run the risk of missing the best days. CNBC reported if you consider the decade starting in 2010 and were continuously invested, your return was 190%. If you excluded the 10ten best days, your return fell to 95%.
9. Myth: If the stock market has historically returned 10% a year, then 10% is a realistic retirement savings withdrawal rate. The logic seems simple. If everything works well, you would never invade your principal. What could possibly go wrong?
Reality: The stock market might have returned that number over time, but it doesn’t return 10% every year. Some years it returns less. Some years it has negative returns. Those negative returns can be back-to-back. The retiree would be withdrawing 10%, probably the same dollar amount as when they started, every year. When you have bad years, the base for future growth declines dramatically. Experts have felt 4%-5% is a more appropriate withdrawal rate.
10. Myth: All government debt is safe. We know a U.S. Treasury bond held to maturity returns the original principal amount. We know countries like the United Kingdom, France and Germany issue bonds too. Government bonds are called sovereign debt. We feel pretty confident the Brits, French and Germans would honor their debts, therefore we assume all government bonds are equally safe.
Reality: Not all governments are solvent. Not all governments treat money owed to others with the same respect. Argentina and Lebanon are two recognizable country names that have defaulted on their debt in past years.
Investing often looks easy. People should go in with their eyes open. They should take advantage of some level of professional advice.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.