Wall Street's Biggest Myth

Wall Street's Biggest Myth
If you're like many investors, you are probably sitting on the sidelines now, wondering why your portfolio is in such bad shape. I think it is important to review some of the key bits of advice that Wall Street keeps pitching to retail investors. These are widely accepted investment adages that somehow became "gospel truth".

Probably the number one Wall Street investing adage is Buy and Hold. I believe that "Buy and Hope" is the greatest myth foisted on the American public in the last 200 years. As millions of investors have found out the hard way, stock markets can have long "down" periods.

Here are some historical facts which I'm sure that your financial advisor "forgot" to tell you. For someone who invested in the stock market in 1929, it took them until 1957 to break even and for someone who invested in the stock market in 1966, it took them until 1983 to break even.

Yes, stock markets always do go up in the long term. The key point is the definition of "long-term". If you mean a period of longer than 25 years, then yes the stock market will be higher. But for periods less than 25 years, it becomes more of an iffy proposition.

The stock market really is cyclical - long bull markets are followed by long bear markets. But Wall Street doesn't tell you that - they want the investing public in the game all the time.


So it was not surprising to see data from the Employee Benefit Research Institute which showed that more than 30% of near-retirees or those in their early retirement years had more than 80% of their money invested in stocks at the beginning of this current crisis.

I feel terrible for those people. Those people had absolutely terrible financial advice from their advisors. Their portfolio allocation was completely wrong for someone in their situation.

Unfortunately, the risks of outliving your money go up dramatically if you are forced to sell in a bear market as we have now. According to T. Rowe Price, if you achieve annualized returns of zero or less for the first five years after you retire, your odds of running out of money in the next 30 years more than double from 26% to 57%!

For people in this situation, probably the best thing they can do now is to look at their overall portfolio and re-allocate the funds the best that they can.

This would probably involve moving assets to areas that I have talked about in the past. These would include: Treasury Inflation-Protected bonds (TIPS), bank CDs, some selected corporate bonds, dividend paying stocks with a strong balance sheet (such as BHP), high-growth emerging market stocks and gold.

If you have any questions or comments about this article, please feel free to contact me directly at any time - I am here to help you.

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