Bust these 3 equity myths

Investors have three major misconceptions about market conditions, says David Winters, CEO of Wintergreen Advisors in Milwaukee, WI.

The first is that equities are dead. This is a controversial topic that’s sparked widespread debate about the merits of value investing and stock picking.

Read:

• 5 reasons stock picking is dead

• Long-term investing is dead: Gundlach

• Rebuttal: Long-term investing is alive and well

“Some very prominent bond investors [claim] equities will never make a comeback, but the wealthiest people in the world have made their money through ownership of all or part of a business,” says Winters.

Read: What would Warren Buffett do to your portfolio?

Equities may have offered poor returns in recent years, he adds, the media has also had a hand in convincing people equities are a bad investment.

This pessimism isn’t all bad, however. It creates a buying opportunity, since there’s “such a sense of gloom, you [often] get a lot for what you’re [currently] paying. It’s like an after-Christmas sale for equities,” says Winters.

The second misconception is fixed income is a risk-free investment, he adds. In actual fact, “it’s actually a very risky asset class because of the probability of higher interest rates and the loss of purchasing power through inflation.” There’s also currency risk.

Read:

• Managing client risk assumptions

• Expect lower fixed-income returns: Audio

Third, investors also believe international investing isn’t worthwhile. “This is absolutely untrue,” suggests Winters.

“If you’re not involved in international equities, you’re missing the boat,” he adds.

Read: Don’t spurn global equities

“Intelligent investors [will] allocate some of their capital to equities, particularly international equities, and should reduce their holdings in long-dated bonds,” concludes Winters.