“Ten Stock Market Myths that Just Won’t Die“ on the Wall Street Journal Digital Network.
Myth 8 is particularly important to novice investors:
8 “We recommend a diversified portfolio of mutual funds.”
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that’s good advice.
But too many brokers mean mutual funds with different names and “styles” like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as “midcap blend.” These funds are typically 100% invested all the time, and all in stocks. In this global economy even “international” offers less diversification than it did, because everything’s getting tied together.
Especially in light of this chestnut from Myth #9:
…the lion’s share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they’ve chosen rather than the individual investments.
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