Investing is surrounded by many myths. As a result, some people hesitate to invest their money, while others overestimate themselves. We dispel the ten most common myths.
Facts vs. Myths
Investing in the financial markets offers many opportunities, but is also associated with uncertainty. These not only influence the behavior of market participants, but also reveal investment errors and prejudices. Below we will show you the facts about a selection of widespread myths about investing money.
Mythos 1: Cash is King
Many people are hesitant about investing their money. The reason is often: “I don’t want to lose money.” However, when you hoard money in your account, you are not completely safe. In fact, products and services become continually more expensive over the years and the purchasing power of cash or account balances quietly dwindles. The nominal value remains the same, but the real value and thus the purchasing power gradually decreases.
Myth 2: Now is the wrong time to invest
There are always reasons to hold off on investing or forego it altogether. These are as follows: “Now is not a good time.” “The environment is too unsafe for me.” “I’m waiting for the next correction.” On the other hand, there are good arguments for pursuing a targeted investment plan and starting it now. Stay calm and keep an eye on your investment strategy so that your assets can grow in the long term.
Myth 3: The right timing is crucial
Being able to predict the perfect time to buy or sell a security is statistically highly unlikely. At any point in time, new information can emerge that can suddenly change the timing assessment. Being or remaining invested according to your personal investment strategy is more important than timing. This requires a certain investment discipline, but prevents nerve-racking and fee-driving activism.
Myth 4: Diversification is only for the faint-hearted
Diversification means spreading investments across different asset classes, sectors and geographical regions. This reduces the overall risk of the portfolio without reducing the return. Adequate diversification is the most important principle when investing for everyone (not just the timid) and, along with a sufficient investment horizon, is the most effective strategy for reducing the overall investment risk.
Myth 5: Investing in the home market is the best investment strategy
Thanks to a reliable monetary, fiscal and economic policy, Switzerland has offered a safe haven for investment for many years, which was able to cushion the numerous crises of the recent past. This is reflected, among other things, in a strong domestic currency and comparatively low inflation. From a Swiss perspective, it makes sense to give the home market a large weight in the portfolio. But just like individual stocks or asset classes, countries are also subject to certain risks. Switzerland is not protected from crises. An appropriate weight of foreign assets is important because this enables even more optimal diversification.
Myth 6: Intuition is the key to success
Our intuition tells us to withdraw from investments when prices fall and to buy more when things are going well over time. However, the result of this approach is that we end up selling low and buying high. Intuition is often a gut decision that puts emotions before reason. However, emotions are a major risk factor when investing. Instead of listening to intuition, the best advice is to keep a cool head and pursue a clear investment strategy that is based on your individual financial goals and takes into account your own risk tolerance.
Myth 7: Stocks are too risky and only for speculators
Investments in companies make it possible to benefit in the long term from the value creation of companies and thus the economy as a whole. The proportion of stocks in the portfolio depends on your personal risk capacity, risk tolerance and investment horizon. In addition, sufficient diversification should be taken into account by investing in sufficiently different individual stocks or through funds and over a longer period of time. An important aspect of stock investing – in addition to the price gains – is the regular dividend distributions, which add up to a considerable amount over the years.
Myth 8: Bonds are lower risk than stocks
In fact, bonds from solid counterparties have less fluctuation in value than stocks and are more predictable due to the fixed interest rate and fixed repayment date and price. Nevertheless, they also have risks such as credit risk or interest rate risk. Bonds have performed very well over the last forty years as interest rates have fallen from record inflation in the early 1980s to negative levels a few years ago. However, in the period 2021 to 2023, a rapid and noticeable trend reversal was observed, which resulted in rising interest rates and caused bond prices to fall to a similar extent as the stock indices. However, this is a temporary effect for bonds, as classic bonds are repaid 100% at the end of their term and the capital due can be invested at the new interest rate level. The bottom line is that bonds add stability to a portfolio, generate regular interest income and offer additional diversification options.
Myth 9: Investing is pure gambling
History has shown that stock markets rise in the long term as long as there is economic growth and technological progress. Long-term investors are generally more successful than short-term traders. A balanced and diversified portfolio (measured using the example of the LUKB Expert-Growth fund) has achieved a positive annual return in 21 years over the last 30 years. Over the entire period of 30 years, the result was a performance of 138% or 2.9% per year. Investing is always fraught with uncertainty. However, systematically and consistently pursuing your own investment strategy can help increase your chances of success.
Myth 10: Gold is the best protection against inflation
Gold has a reputation for being a safe investment and a good hedge against inflation. But high inflation is by no means a guarantee that gold prices will rise. For example, gold lost noticeably in value in the first half of the 1980s despite persistently rising inflation. Something similar can also be observed for other time periods. Gold is not a profitable form of investment. It can give the portfolio stability and is therefore definitely justified as part of a diversified portfolio. However, stocks or real estate offer better protection against inflation
Conclusion: Trust in facts and long-term perspective
When investing, do not allow yourself to be guided by half-knowledge, prejudices, emotions or rumors and do not put everything on one card. Instead, analysis, strategy, discipline, long-termism and diversification are good guidelines. The expertise of professionals helps you make informed investment decisions and align your investment strategy to achieve your personal goals.
