3 Misconceptions That Prevent Investment Success

Since 2007, I’ve helped hundreds of people invest to build wealth.

People know that investing is the way to build wealth, but most focus on the wrong things.

3 misconceptions that prevent investment success:

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1 – You have to be smart

“Winning the Loser’s Game” by Charles Ellis is a book anyone who invests money should read.

Charlie was on Yale’s endowment board and worked with David Swenson. He’s a legend but the book is simple and practical.

Ellis’ key point: Investing is a “loser’s game”. You don’t win with brilliant moves; you win by not messing up.

He compares it to tennis.

Only the top 1% of players make fancy shots. For most people, keeping shots in-bounds and waiting for your opponent to miss is best.

You don’t need to graduate Harvard, understand crypto, or predict the next recession to make money investing.

But selling at the bottom, not diversifying, getting swept up in speculation – can all be deadly.

Just buy cheap index funds, hold them for years, and avoid emotional reactions. Staying invested over time allows compound interest to work. Period.

2 – You need to “beat the market”

Maybe the biggest lie. From 1928 – 2022 the S&P 500 – a PASSIVE investment in US stocks – returned roughly 10% on average per year.

Over the last 10 years ending September 30, 2023 iShares’ IVV (which tracks the S&P 500) returned 11.9% average per year.

iShares’ ACWI, which tracks the GLOBAL stock market returned 7.7% on average per year over the same period.

Inflation was around 2% or less for most of the last decade and bank deposits only recently started paying decent interest. But passively buying the market beat inflation by 6-8%.

Professional investors seek outsized returns through research to uncover value the market doesn’t yet recognize.

You can try to compete with them if you want. But it’s expensive, difficult, and many people don’t need to do it to hit their goals. Just take what markets give.

3 – Investing in new technology has the highest returns

Tech is cool. It makes our lives easier and allows us to do things our grandparents would think of as magic.

Right now seven tech stocks are driving the US stock market.
reuters.com/markets/us/wal…

These companies seem unstoppable, able to grow earnings even when we were all locked in our homes hiding from COVID.

But you don’t need VR goggles for high returns.

Do you know what the best-performing stock of the last 20 years is?

Monster Beverage.

$MNST has blown $AAPL and $NVDA out of the water. Sugary drinks in cool-looking cans. No extra points for fancy in investing.

Also consider returns on Commodities and Energy stocks in 2021 and 2022. Tech got hammered and hard commodities did well.

Sometimes stocks of companies making breakthrough tech do well. Sometimes unloved areas of the market undergo a big change in expectations. Either way, the money spends the same.

h/t
@LarrySwedroe