4 of the biggest investing myths (debunked) + 1 stock added to my watchlist
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Weekly Market Update 🗒️💡
Walmart (WMT) is laying off hundreds of workers as large retailers brace for another tough year ahead, with slower sales growth and lower profits. These margins will widen as inflation falls, eventually.
Amazon (AMZN) is also laying off another 9,000 workers as well as closing, canceling, and delaying the opening of new warehouses, as some online sales shifted back to stores. Are brick and mortars the new trend?
Target (TGT) plans to cut up to $3 billion in total costs however they pledge to not back away from investments in their team and customer experience.
Block (SQ) plunged 16% after short seller Hindenburg Research announced it as its latest short position.
The reasoning: the accusation of Block allowing criminal activity to operate and highly inflating the Cash App’s transacting user base.
Just Noise? Probably. I’m long Block.
Tweet of the Week
4 Investing Myths Debunked
Mutual funds are good investments…
If you didn’t already know, the mutual fund industry’s success is more dependent on distribution and volume than it is on performance. Why? Because the more assets they have under management (AUM) the more fund managers earn in fees.
So there’s an incentive to bring on as many people as possible without necessarily giving them the best results.
Also, the mutual fund business is relative. Meaning they’re not always looking to outperform the market rather than outperform their competitors. Doing this makes them look like “the best option” and attracts more investors. Resulting in more fees. Resulting in fund managers making more money.
They truly don’t have your best interest in mind and your portfolio won’t be the only one they’re managing, so you won’t get preferential treatment either.
If you’re investing for the long term, a better bet is to buy passively managed low-cost index fund ETFs. These include Vanguard funds like VOO 0.00%↑ or VTI 0.00%↑ .
There are a variety of different index fund ETFs from a bunch of different companies, so make sure you’re doing your research beforehand.
The stock market is a casino…
When it comes to investing, there is an element of risk involved. There’s no getting around that. However, the stock market is NOT a casino.
There were many investors who jumped into the stock market during the massive 2021 bull run, who at this point may think the stock market is one big gamble. They saw the value of their investments skyrocket and then plummet all within a span of 2 years. That’s not reassuring for a beginner investor and some may be turned off from ever investing in the stock market again.
Those that invest for the long term are not gambling, because investors can use various strategies, like fundamental and technical analysis, to make informed decisions and minimize the risk of investing.
Investors can also diversify their portfolios by investing in different industries and asset classes to spread out their risk. Finally, the stock market is regulated by the government and protected from fraud and (most) manipulation.
Last time I checked, there’s none of that at a slot machine.
Investment fees are negligible…
Yes, a 1% fee sounds extremely irrelevant right now, but in 20 years you might think differently.
The only way to demonstrate this example is by using numbers:
Let’s take a $100,000 investment compounded over a period of 20 years with an annual return of 7%, and compare the returns with a 1% fee and a 2% fee.
20 years without fees: $386,968
20 years with a 1% fee: $344,286
20 years with a 2% fee: $301,191
The difference between 0% and 2% is more than $85,000.
That’s not irrelevant at all.
You can never be too diversified…
Diversification is an important strategy that can help you manage your risk, but contrary to popular belief, it is possible to over-diversify your portfolio.
Here are a few reasons you might want to consider before adding another position to your portfolio:
Dilution of returns: Over-diversification can dilute your investment returns, especially if you hold too many investments with similar risk profiles. This means that even if some of your investments perform well, their impact on the total value of your portfolio may be insignificant.
Difficulty monitoring investments: Managing a highly diversified portfolio can be time-consuming and complicated, making it challenging to keep track of each investment's performance and make smart decisions. Imagine keeping up to date with 40+ companies. Yikes.
Increased transaction costs: Buying and selling too many investments can increase transaction costs if your broker charges trading fees, which can eat into your returns over time. If your broker offers free trading, disregard this.
Missed opportunities: Over-diversifying your portfolio can also cause you to miss out on potential high-growth opportunities in specific sectors or industries that you may have overlooked in your efforts to diversify. Something to think about.