Dispel The 9 Myths of Investing

There are many investing myths but in my opinion 9 of these are the common myths that many investors believe. I am starting a series of articles in the Fullyinformed Members section called “Becoming A Better Investor”. These articles are designed in a step fashion for members to follow along as I show the steps I went through to become the investor I am today. In this series of articles I will discuss everything from how to start into investing, raise capital, pick stocks and assets, and show the strategies I learned and use to compound my capital and benefit from market direction, up or down. For market corrections and bears I have created a “Corrections And Bear” category where I will detail out the steps I take during any correction to show members how to prepare and profit from a correction. I will be updating this throughout any market correction to show investors what I am doing, why and how.

The purpose behind the members section of FullyInformed is NOT to give out tips on a fast stock or delve into get rich quick schemes. There are plenty of financial investment newsletters who are doing that. This is not the focus of the FullyInformed Members section. It is for members to be able to make their own decisions, pick their own stocks and understand the use and timing of strategies to suit their individual investing methodology, style and level of comfort. It is to become self-sufficient. I do not believe that any financial newsletter, guru or stock picking software can compete with an investor who understands key concepts of investing for growth and income while being aware of risk and the importance of capital preservation. That is the purpose of the FullyInformed Members Section.

The first article in the series looks at the 9 myths of investing. For non-members I felt you might enjoy the myth on Dollar Cost Averaging and see why it is a strategy that works in theory but fails in reality. I have listed the other myths that are covered in the article. To read all the myths, FullyInformed Members can directly access this article through this link. Non-members can join here. The complete article is 10 pages in length and contains 3595 words.

How To Get Started – Step 1 – Dispel The 9 Myths

Myth 1: You Can Afford To Take More Risk While Young Because Time Is On Your Side

Myth 2: Higher Returns Can Only Come From Taking Higher Risks

Myth 3: Buy Low and Sell High Is The Only Way To Grow Wealth

Myth 4: Buy and Hold On Quality Companies That Have Increasing Dividends Is The Best Strategy For Building Wealth

Myth 5: ETFS Are Better and Safer Than Stocks

Myth 6: Dollar Cost Averaging Is A Great Way To Invest

The notion behind dollar cost averaging is that an investor places the same amount of money into an ETF or stock at the same time each month, quarter, semi or annual time period. It is because analysts believe that if you invest the same amount when a stock or ETF is high you will buy fewer shares than when an ETF or stock is low. This they surmise will mean you have more shares at a lower price than a higher price and therefore are in the ETF or stock at a much lower position overall.

But when theory meets fact it becomes obvious that this is a poor strategy. For example let’s consider the strategy of dollar cost averaging on a “safe” ETF. In the example below I have laid out the table on the XIU ETF which is the top 60 stocks on the Toronto Stock Exchange. On the first trading day of each quarter at the close of the day the investor buys $5000 worth of shares in the XIU ETF. This table starts in Jan 2006. Below are the results after 6 years of investing.

Dollar Cost Averaging Results After 6 Years:

After 6 years the investor has accumulated 7648 shares in the XIU ETF and tied up a total of $134,822.31 of his capital. He has earned $11964.51 in dividends or 8.8% over 6 years. This works out to a return of 1.46% a year.  On Nov 2 2012, the day of this article, the XIU was trading at $17.79. 7648 shares X $17.79 = $136,057.92.

Total return from this investment after 6 years is $11,964.51 in dividends and $1,235.61 in capital gains. Total return = 9.7% or 1.6% a year.

Is this the type of return you would want after 6 years of investing and risking $134,000 in an investment? Dollar cost averaging is an excellent way for a financial planner, mutual fund salesman and broker to earn commissions and give the appearance of investing to a client. It is nothing more and a poor investment concept.

Myth 7: Options Are Risky

Myth 8: Investing Through Options Is Not Real Investing

Myth 9: Investing Is For Professionals, Financial Planners and Brokers – Not You and Me

This FullyInformed Members Article can be directly accessed through this link or Members can login here. Non-members can join here. This article is 10 pages in length and contains 3595 words.