Myths in investing – Myths about gold, bonds, funds

Myths in investing come from everywhere. They appear due to illiteracy, mistakes, delusions and stir up the water even more for those who do not understand the issue. No wonder people trying to start investing get too much resistance, wave their hands and give up ideas.

Let’s look at some popular myths about investing in gold, bonds, and mutual funds that will help dispel doubts..

Gold is the best investment

Investors who have been investing for a long time know that bad news and forecasts are often associated with gold. Beginners constantly hear and read that gold is one of the most stable assets that can be in a portfolio. Yes, physical tangible assets, such as precious metals, are relevant to the investment portfolio. They are weakly interconnected with other asset classes. There are situations when, with the overall growth of the stock market, the price of gold remains at the same level, and vice versa.
Nevertheless, if you bought gold over the past five years, you would have lost 26% of investments. Profitability, worse than gold, is only silver. Gold can be seen as an instrument of diversification, and not as an instrument of profitability. And it’s better to pay attention to other segments of the economy.

Bonds are always a safe asset

Bonds in most cases are predictable and do not give “surprises”. However, it is worth remembering that bonds are not only government securities that are truly stable. This is an entire asset category that includes lower-grade corporate debt instruments..

In addition to a credit rating (a financial indicator of reliability), a term may also be a risk. Long-term bonds are particularly vulnerable in the face of a growing economic rate. It reduces the cost of previously issued securities. For example, when you invest in “long” bonds with a rate of 7%, you may lose the principal amount if interest rates rise at that time, for example, to 10%. The yield of the bond will be below market, and the price of the paper will fall in price. But the situation works in the opposite direction..

Inflation is also a risk. When an investor buys bonds, he agrees to receive a fixed percentage of payment (permanent coupon) or a floating percentage (variable coupon). If the inflation rate accelerates significantly, then purchasing power will decrease, and taking into account inflation, income will be negative.

Reputable and popular investment funds guarantee profit

Myths in investing will not do without it. Each investor should understand that the successful operation of the fund in the last month or year is not a guarantee of future results. There is no evidence that mutual fund returns will be just as good. If past results are the only argument for you, then when you make a transaction, you choose a random asset. Do not invest in a fund based on how much money it helped its customers make last year..

Before giving your money to a mutual fund, evaluate its assets, commissions and what investment strategy it uses. Compare year-to-year profitability data and their dynamics. Check who is the manager of the mutual fund and read information about this person. View management company reliability rating here and volume of assets under management here (the more assets, the better).

We talked about investment strategies that use mutual funds in this article.

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