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October 18, 2017

Top Ten list of funny investor beliefs

Everyone knows that bad ideas and dumb behavior exist, but most assume it is a problem that afflicts other people, and that you are doing the right thing. If you don’t surround yourself with people who can give you unbiased advice, you will never realize that you are just as wrong as everyone else – and you will keep making the same mistakes. This is why the average investor not only underperforms the market, but has been doing so for his or her entire investing life.

Without much further ado, here is our Top Ten list of funny investor beliefs:

  1. Investors think stocks are too risky but crypto-currencies are the future.
  2. Investors think they are well diversified because they own a mutual fund that tracks the S&P 500
  3. Investors think that their financial advisor who is paid commissions has no conflict of interest and only their best interest in mind.
  4. Investors buy gold because they are worried about a meltdown of the financial system. However, they buy gold ETFs, not physical gold. Basically financial products that only keep their value if the financial system remains viable.
  5. Investors think gold is a sensible long-term investment despite gold having delivered a worse performance than equities AND a higher volatility over the last 10 years.
  6. Investors think they can beat the equity market with their single stock picks but not even Warren Buffett has been able to beat the S&P 500 (including dividends) since 2012.
  7. Investors think buying a hot company is a sure thing. Anyone remembers Pet.com? GoPro?
  8. Investors think buying non-listed funds with more than 10% sales commission are a good idea although approx 70% of them have shown to be loss-making over the last 30 years.
  9. Investors think buying a bond fund with a >1% annual management fee that invests in German government bonds yielding less than 0.5% is a good idea.
  10. Investors think financial advice from their bank is free but they don‘see that they are paying 5% upfront fee for underperforming in-house mutual funds, which charge an annual management fee of 2% plus a 10% performance fee

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