Investment rules and common knowledge can be completely wrong when inappropriately applied to your individual situation. Here are two common ones:
Buy and Hold is the best approach for most investors.
B&H is one of the basic axioms of the investment industry. On one hand, it does steer you away from what you don’t want to do — jump in and out of investments with every stock market hiccup.
However, it does encourage hanging onto a raft of dogs, which the mutual fund industry loves because you’re paying management fees. Also, the B&H mantra keeps most investors from questioning their purchases.
The problem is if a stock or mutual fund is a dog, it will keep barking no matter how long you hold it.
Here’s a better rule. Buy, Hold and Monitor. Evaluate your holdings annually. If you notice long- term yipping and howling, show that pooch the door.
If you’re young, you can afford to take risks.
This is a commonly heard refrain and it’s usually the precursor to a mutual fund salesperson loading up a young adult with higher risk (and higher fee) investments. But if you start saving early you can be conservative and still reach your goals, thanks to the miracle of compounding where every dollar you earn on your investments goes back into the pot to help your money grow.
Here’s a better rule: If you’re young, you don’t need to take risks.
Alison Griffiths’ show Maxed Out appears Wednesdays at 10:30 p.m. on W Network. You can find out more at: alisongriffiths.ca