12 of the most common investing misconceptions

The bad thing with the most common investing misconceptions is that they are sometimes “promoted” by professionals. It is always up to you to question any advice you are given and ask yourself whether it makes sense and if the person that gives you such advice might make a profit from that.

A portfolio is riskier than treasury bills : That is of course not true. You should diversify your portfolio to reduce the unsystematic risk. A diversified portfolio will have lower risk than a single security.

Emerging Market Securities are riskier : It can be true but not always. Developed economies have a lot of poor performing securities and emerging securities have a lot of good performers.

Deposits are always safe: But what happens if the insurer goes bust?

Investing in dot-com companies is always profitable: I think that one word is enough. Facebook!

Properties do not lose value : Prices change based on demand and supply. Properties are not an exception. The recent housing crisis is really good example against impulsive investment in properties.

Short selling securities is the same as gambling : That is of course not true. Short selling is allowed since it can help us hedge against risk. Short selling can be a gamble if there is no underlying risk but that’s not always the case.

“DIY investment” is safe and everyone can do it : That can be a really expensive misconception. Financial products are usually complicated and the prices can change due to so many things. Having a professional trader advising you is not bad idea!

Credit rating agencies are non profit organisations that provide accurate ratings : Credit rating should be only be one of your indicators. A single piece of information and nothing more than that. I would never just rely on a credit rating especially after the subprime mortgage scandal.

Technical analysis is profitable if you have a good strategy : It’s naive to believe that the future can be predicted by using the past. Stock prices is not an exception!

Auto trading software/robots can make you a millionaire : It’s only the developer that makes money by making such software. Ask yourself why would someone sell a software that can “print” money!

Risks is the same for everyone : Before forming or accepting a suggested strategy, ask yourself whether you are willing to bear the risk that the strategy has. Every person is different and your portfolio should be built to cover your needs!

Dividends are irrelevant : People usually forget the appreciation of the stock price is only one side of the coin. Investing in securities that pay dividends is a natural way to hedge against a decrease of the market price.

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