How often do you hear statements that investing in real estate is much more profitable and safer than in stocks? That in order to generate income, you just need to choose and hire a worthy manager? Do you believe it? These are common stereotypes that actually turn out to be myths.
To keep and increase your capital, you must say goodbye to both these and many other stereotypes. Today we are going to talk about 5 main myths faced by both a beginner and an experienced trader.
MYTH № 1: INVESTMENTS IN SECURITIES WILL BRING MORE THAN 10% PER ANNUM IN DOLLARS.
London Business School professors Elroy Dimson, Paul Marsh and Mike Staunton have conducted investment research for two decades. They completely refute the myth that you can earn more than 10% per annum. According to studies of the most profitable assets, the world average profitability did not exceed 4% per annum. Of course, the value in some markets was slightly higher or lower. For example, in the United States, the average return was 6.5% after deducting inflation.
Also, there are such classes of assets, the profitability of which varies within 2-3% per annum.
Calculating mathematically, it can be understood that a stable long-term return of 15% is impossible. Imagine that your relative invested $ 1 million in 1900, at 15% per annum. Today his capital would be $ 11 trillion. This figure can be equated to one-sixth of the capitalization of all markets in the world, or 60% of US GDP.
Conclusion: profitability above 10% per year is impossible, and if someone tries to convince you otherwise, you should know that this person is either lying to you, or he is in a deep delusion.
MYTH № 2: BONDS CARRY THE SAME RISK AS DEPOSITS AND BRING THE SAME RETURNS AS SHARES.
Recently, many private investors have started to pay attention to the bond market. As a rule, investors set themselves the goal of building a portfolio of several reliable bonds that will bring 8-10% profit per year.
If it was so easy and safe to get income from bonds, everyone would have started investing in them long ago. In reality, the profitability on bonds of leading companies does not exceed 3-4%.
MYTH № 3: INVESTING IN REAL ESTATE IS MORE PROFITABLE AND SAFER THAN INVESTING IN SHARES.
The myth that investing in real estate is more profitable and more reliable than investing in shares has become increasingly evident over the years. Investors who invested in real estate back in 2010 are now trying to find clients in order to return at least part of their capital. At the same time, having invested in the stock market, they could not only save, but also increase their savings.
In a long-term investment, the return on investment in commercial real estate can be compared to the return on stocks. When investing in residential real estate, the profit will be significantly less than from stocks.
It is difficult to give an unambiguous assessment of risks. Logically speaking, the volatility of the stock market is much higher than that of the real estate market. This is due to the fact that real estate is characterized by less liquidity. But, in fact, when it comes to a real sale, most investors find themselves in a situation where the “market” price of real estate is irrelevant, because it is almost impossible to find clients on it.
MYTH № 4: INVESTING IN SHARES IS VERY RISKY.
In fact, investing in individual shares come with certain risks. Since 1926, Bessembinder, a professor at the American School of Business, has been analyzing the profitability of American shares, according to which only 4% of shares have gained in value.
It is important to note that this is not an indicator that it is impossible to make money on stocks. Over the past 40 years, many different instruments have appeared in the financial markets that are tied to the stock index as a whole, and not to specific companies. For example, mutual funds and ETFs. Contribution to such indices ensures that among the list of securities there are definitely some of the most profitable ones.
In addition to all of the above, the longer the investment, the lower the risks you expect. An analysis of stock quotes data, conducted by Robert Schiller, showed that by increasing the investment period from 1 year to 10 years, a trader increases the probability of earning income from 68% to 92%. The nice thing is that the risk is reduced by 6 times.
MYTH № 5: YOU JUST NEED TO FIND A STAR MANAGER AND HE WILL MAKE VERY GOOD PROFITS.
American scientists have conducted a study according to which it can be seen that the percentage of investment managers who have received a return above the market rate is stable at less than 50% (usually this figure is approximately 40%). The percentage of those who can consistently make high profits is approximately 2-3%.
In the stock markets, there is a concept of “suboptimal behavior of a private investor”. This implies that investors “enter” and “exit” the market at the wrong time. This behavior is often associated with a change of manager. This justifies the fact that the average return of investors is below the market average by about 3-4%.
The choice of a manager should be approached thoroughly. Do not trust the first broker you see.
An investment fund will help you create a portfolio, correctly distribute your risks and conduct successful trading. For example, Afex Capital will provide you with full support in the market. What does it mean? This implies that even if you have absolutely no trading experience, you will be able to trade using the knowledge of an experienced expert. To do this, you need to register.