Market Myth #2: It’s all about beating the market.
For many amateur investors the object is to beat the market. They are abetted in this belief by the many magazines and newsletters that make the market the benchmark of what a successful investor should emulate. People spend hours scouring the media looking for stock tips and investing ideas as if investing was a sport, like horse race, where the object is to beat the others to the finish line.
The fact is that “beating the market” does not address any individual’s actual financial goals. It’s a meaningless statistic. And it’s dangerous.
The fact is that most professional investors don’t beat the market on a consistent basis. Even index funds, designed to replicate the market, don’t actually beat the market. At best they provide market rates of return minus a fee. Attempting to beat the market exposes the investor to more risk than is prudent.
Your portfolio should be built around your needs and consistent with your risk tolerance.
What does this mean? Your portfolio should provide a return that’s keeping you ahead of the cost of living, that allows you to retire in comfort, and is conservative enough that you will not be scared out of the market during the inevitable corrections.
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