November 3, 2011

Investment Myth That More Risk = More Return

Some investment myths continue to persist no matter what the reality is and most investment myths are dangerous to your financial well being.

Here is an oldies but a goodie!

More risk = more return.  The notion that you need to take on more risk to get more risk just isn't true.  I know it sounds like it ought to be but it is not.  Over the last decade or so, bonds have outperformed stocks.  Obviously bonds have risk but certainly less than stocks yet they have outperformed.

Smaller cap stocks are always tauted as the answer to higher returns and indeed the data appears to bear that out however upon closer examination, you will see that only a handful of small cap stocks do extremely well and skew the averages.  The fact is that without buying Google in the 90's, apple in the 80's and a few other obscure biotech companies, the smaller caps have pretty much done as well as their larger cap counterparts.

A little less than half of the returns that stocks provide investors are in the form of dividends again proving that you do not necessarily have to take on more risk to get good returns.

No comments:

Post a Comment