In­vest­ment myths that could cost you money

South Shore Breaker - - Sports - KEVIN DOREY FI­NAN­CIAL FO­CUS [email protected]­ward­jones.com

Some­times, in­vestor be­liefs turn out to be myths that may cause in­vest­ing mis­takes. Here are some of the more pop­u­lar myths that may hold a grain of truth, but are prob­a­bly best avoided.

A high yield means a high re­turn

Whether you in­vest in bonds with the high­est in­ter­est rate or stocks with the high­est div­i­dend yield, high yield typ­i­cally comes with high risk. Con­sider the risk of a bond de­fault or div­i­dend cut, which typ­i­cally low­ers the price of the bond or stock, as well as the in­come. (Keep in mind that div­i­dends may be in­creased, de­creased or elim­i­nated at any point without no­tice.)

The United States dol­lar will de­cline

No one has a good track record in fore­cast­ing cur­ren­cies. Since we don’t know which way the United States dol­lar will move, bas­ing port­fo­lio de­ci­sions on such a spe­cific pre­dic­tion is risky. Keep in mind that many United States com­pa­nies re­ceive more than half of their prof­its from out­side the coun­try, so not all will be hurt by a de­clin­ing United States dol­lar. So in­stead of avoid­ing United States in­vest­ments be­cause of an ex­pec­ta­tion for the United States dol­lar to de­cline, con­sider mak­ing them an ap­pro­pri­ate part of your in­ter­na­tional in­vest­ments.

The best in­vest­ments have the low­est fees Fees mat­ter, but re­turns af­ter fees and taxes are what you keep. So con­sider whether the fees pay for some­thing valu­able, such as bet­ter liq­uid­ity, en­hanced as­set se­lec­tion or im­proved di­ver­si­fi­ca­tion, though, keep in mind that di­ver­si­fi­ca­tion does not guar­an­tee a profit or pro­tect against loss. Don’t be mis­led into think­ing that all low-fee in­vest­ments pro­vide high re­turns. You may pay higher fees to own bond or eq­uity funds, but these fees are of­ten more than jus­ti­fied by the ben­e­fits they pro­vide to your port­fo­lio.

You can’t be too diver­si­fied Own­ing many sim­i­lar in­vest­ments tend to in­crease the com­plex­ity of your port­fo­lio without in­creas­ing the re­turn or re­duc­ing the risk. If you own in­di­vid­ual stocks and bonds, you should con­sider con­struct­ing your port­fo­lio care­fully to en­sure ad­e­quate di­ver­si­fi­ca­tion. To start, each stock or bond should con­sti­tute no more than five per cent of your port­fo­lio and they should be spread across a va­ri­ety of in­dus­tries. If you own mu­tual funds as well, you’ll need fewer to achieve ad­e­quate di­ver­si­fi­ca­tion, but you’ll want to own funds that com­ple­ment each other.

Speak with your fi­nan­cial ad­viser to learn more about these and other myths that could keep you from meet­ing your long-term goals.

Note: In the Nov. 14 edi­tion of the South Shore Breaker, The Ed­ward Jones’ Fi­nan­cial Fo­cus col­umn writ­ten by Kevin Dorey ti­tled “Ques­tions to ask your fi­nan­cial ad­viser,” was in­cor­rectly at­trib­uted as con­trib­uted.

123RF

There are some in­vest­ment myths that are some­times taken as fact.

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