Stop Believing These Investment Myths That Are Keeping You Broke
Why do value stocks edge out growth stocks? It’s a question of price, asserts Steve Pomeranz, a Certified Financial Planner since 1981 and a syndicated NPR radio commentator.
First, a question: How many of you who have invested in the stock market would like to know when the next major market downturn will be so you can protect yourself beforehand? If I was posing this question to a large audience, I would see a sea of hands. I mean, who wouldn’t like to know the answer? Everyone wants to ride the rocket up and would love to not be strapped-in for the inevitable fall.
So here’s the problem: much of the financial media as well as the venerable Warren Buffett continually tout the benefits of investing in low cost S&P 500 Index funds. You know the S&P 500 (Standard and Poor’s 500): it’s a list of stock prices of 500 of the most important companies in America.
It’s made up of the companies like Apple, Exxon, the Walmart and the Proctor and Gamble of the world, just to name a few. S&P 500 index funds are a great way to own a piece of all the companies in the index, to capture and reinvest dividends, and to enjoy lower taxes than actively managed funds thanks to minimal buying and selling within the fund.
I actually agree with the idea that an S&P index is truly a wonderful way for an investor to create wealth over a long period of time. That said, it has certain problems that tend to make it a very mediocre investment for most people.
And you’ll never guess why most people do so miserably with this investment.