We bring widespread myths about investing in open-end mutual funds. The common denominator of myths is ignorance of the principles of collective investment.
At the very beginning, we will mention the basic lesson of the investor: Past returns are not a guarantee of future returns. Keep this quote in your head every time you are driven by an insatiable mood to invest the last penny in the really best investment. By knowing this lesson, you will avoid the disappointment of the money spent.
The best fund is the most efficient
Baba’s investment advice is to believe that the most powerful fund on the market is the best for your money. Performance changes over time and copies the business cycle. In times of abundance, it is not usually the best time to start or increase investment. The growth is followed by a decline, which literally attracts to buy securities. Therefore, always have a sufficient reserve for the quick purchase of cheap assets.
Don’t put all your money in one fund
Another common mistake is to invest in only one fund, or in a narrow family of funds focused on industry. Your money should be deposited in several funds, different companies with different investment goals. Only with this diversification will you avoid a future decline in the value of your portfolio. Everything in one fund is a bet on one card.
One hundred percent investment
When investing, there is no guarantee that you will always earn or that the value of the investment will not change over time. If you are looking for security, contact savings. Yield is a market valuation for the risks you take. The ratio is that the riskier the investment, the higher the return.
There is no long-term growth of shares
No asset grows into the sky. This is doubly true for stocks. Shares may not grow in the long run. For example, the German stock exchange index DAX 30 from 1960 to 1975 or the Japanese Nikkei 225 from 1989 to 2008 did not increase in value.
Against possible long-term declines or protracted stagnations, it is necessary for each responsible investor to decompose – diversify – the investment portfolio according to a predetermined key. It is based on investor expectations, financial possibilities and investment profile.
Learn the basic principles of collective investment
The best way to avoid school mistakes is to get acquainted with the principles of functioning of collective investment and open-end mutual funds. You can get quality information, for example, in the book Save or Invest, the author of which is the founder and editor-in-chief of the financial server investia.cz, where you are now. In our opinion, a printed book is the most comprehensive way to find out the first and last about investing, but also savings or insurance.