Stock Investing Myths and Truths Part 4 of 4
Welcome back and thanks for joining us for the final Part in our 4 Part blog series about investing myths. We have two final stock investing myths for you today that will shed some light on misconceptions that people have about stock investing and, hopefully, help you to avoid them yourself. So without further ado, let’s get started. Enjoy.
Myth #7: Dividend stocks don’t deliver high returns.
Many growth investors view dividend stocks as stable (which is a good thing) but also as having slower growth and thus having an inability to bring high returns. Research performed by Ned Davis Research shows that the reality is much different however, and that the total returns for dividend paying stocks are higher than for non-dividend payers.
Let’s look at the difference. Between January of 1972 and January 2013, the annualized returns for companies that initiated or increased their dividends was 9.7%. The stocks from companies that didn’t pay dividends during that same time period returned 1.8%. If we look at this from the perspective of someone who invested $1000 dollars back in 1972, it would mean a $42,000 difference in wealth for the person who invested that money into dividend paying stocks rather than non-dividend stocks.
Myth #8: It’s not difficult to beat the S&P 500.
If you listen to the vast majority of marketing done by investment companies, you’ll soon be convinced that you can beat the market. Frankly, the data suggests the opposite, showing that nearly 60% of the 258 large-cap mutual funds in AAII’s Guide to the Top Mutual Funds (AAII Journal, February 2013) did not beat the S&P 500 return rate.
Considering that these funds are run by the graduates of the very best business schools, investing professionals who use teams of analysts to do their research and analysis, it’s not really surprising.
When you further consider that the average individual investor often buys and sells at the wrong time, as well as making other common investing errors, it becomes rather obvious why the average return achieved by an individual mutual fund investor is less than 50% of what the S&P 500 realizes.
In other words, it actually is quite difficult to beat the S&P 500.
Frankly, even the great Warren Buffett believes that investors who have the time and inclination to select and purchase individual stocks can do well over time, meaning that yes it’s possible to make money selecting individual stocks. The only way to do it correctly however is to be extremely disciplined and rational, focusing on research and avoiding the 8 Myths that we have talked about in this blog series.
We truly hope that you learned a lot during the course of this 4 Part series, and that you now have more, and better, information than you did when you started. If you have any questions about investing in the stock market, or would like to leave some comments, please do and we’ll make sure to get back to you with any answers that you might be seeking. Thanks so much for joining us and make sure to bookmark us and come back for more excellent investing information in the future.
Filed under: Investing
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