Wikinvest Wire

The myth about financial myths

Tuesday, March 17, 2009

Kiplinger.com, the purveyor of various and sundry business publications including the monthly Kiplinger's Personal Finance magazine (a poor cousin to industry leader Money Magazine that is often ridiculed in these pages) files this report on ten financial myths.

Apparently in no particular order, they are:

1 - There's always a hot market somewhere
2 - Real estate behaves differently from other investments
3 - Reliable dividend payers are safer than other stocks
4 - Foreign creditors can drain the U.S. Treasury overnight
5 - Gold is the best place to hide in a lousy economy
6 - Life insurance is not a good investment
7 - The economic downturn dooms the dollar to irrelevance
8 - Mass layoffs reward investors
9 - It's crucial to diversify a stock portfolio by investing style
10 -A near-perfect credit score will get you the best loan rate
Naturally, the glaring omission in this list is something - anything - having to do with an idea that is quickly losing favor among retail investors, namely, "stocks for the long run".

This is particularly true for those individuals who are now at or near retirement and for good reason - their "long run" isn't so long any more.

Kiplinger is likely of the opinion, along with huge swaths of what remains of the financial industry, that this thesis will never be discredited as long as the long run can be extended indefinitely.

They may be right.

About the closest you get to an admission that things aren't going so well in the portfolios of millions of retail investors is number 9 where they talk about Morningstar "style boxes" and how, instead of attempting to fill them all up, maybe you should take the plunge with something a little different, stopping short of recommending one of those new long-short funds that may have been added to your menu of investment fund options.

Geez...

Personal finance magazines are still stuck on stage one of the Five Stages of Grief -Denial.

Of course it was item number five that drew my attention and, for whatever reason, Yahoo! Finance saw fit to make it the "teaser" subtitle on their main page a short time ago.
IMAGE The truth about gold - yes, please tell us.

Here it is - prepare to be underwhelmed:
MYTH 5. Gold is the best place to hide in a lousy economy. In early February, an ounce of gold traded for $910. That's just where it sat a year ago, when world economies weren't so bad off. But foreign and domestic stocks, real estate, oil and riskier classes of bonds have all tanked since, and now gold looks -- ahem -- as good as gold. However, gold does not typically benefit from a recession. As inflation slows, people buy less jewelry, industry uses less gold, and strapped governments sell reserves to raise cash.

Truth: Gold tends to rally in prosperous times, when you have inflation, easy credit and flush buyers (kind of reminds you of real estate. . . ).
It's important to always keep an eye out for when Money Magazine, Kiplinger, and their ilk start writing glowing editorials about gold because that's when you should be calling the local coin shop to make sure they have enough cash on hand to exchange for the ounces you're about to bring in.

We are still far from reaching that point if this piece is any indication.

If they had provided an unbiased view of things, they'd have simply said:
Myth 5. Gold is a bad investment. Gold pays no dividends and earns no interest making it unworthy of consideration for your investment portfolio.

Truth: Gold has been a very good investment over the last decade - it's about the only thing that has gone up each and every year.
When you read that, go collect your gold and silver coins and bars and make that call.

It seems that the real myth here is the one about those who write about financial myths - that they have your best interests in mind.

7 comments:

Anonymous said...

You could poke holes in nearly all their "myths". They're wrong on most of them, at least the ones that matter.

Mathlete said...

They shouldn't call these myths. Right there on the article they say it's a list for the moment. It's better to say this is an exceptional moment and requires special attention.

But if that's the case, then 5 is clearly wrong. Gold was the best place to be. And 1 is wrong, because 5 is wrong and shorting counts as a hot market.

Developer said...

Excellent financial tips. I used to consider Gold as a good investment before.

Anonymous said...

I think most people used to think of real estate and stock indices as good investments. They've got it backwards on gold though. Gold performs well in time of financial uncertainty, whether inflationary or deflationary. It does not perform well otherwise.

Chuck Ponzi said...

Tim,

This is one of my favorite articles so far. By my estimation, the only thing we know is that don't know a lot.

Put more succinctly (and I only speak for myself, not for anyone else); the more I know, the more I realize the less I know.

However, if there is one truth I have realized that is pretty much the only thing I believe about investing is this: There is nothing more fundamental in investing than timing. Everything else is secondary.

I have yet to find anything more important; and even these "myths" will be truths at the right time.

Where does Gold go from here? I have no idea.

Chuck

AJ said...

My my, is Tim postulating that gold will always keep going up? Weren't there some other people who once postulated that some other market was going to keep going up and up...?

Freddy said...

Sometimes that myths are work too..

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