Over the past 4+ years of working and talking with hundreds of people in tech, I've found a number of myths and half truths that people believe.
Last year I wrote about 5 Money Myths, and now I want to write about 5 more.
So today we will break down these 5 down, and why they can be so harmful - namely, they drive people's behavior around money. And by avoiding these 5 myths, you will become a better investor and saver.
Now, let's dive in.
Myth #1: Who's In Office Affects The Stock Market
You hear this every election year - party x is better for the stock market, or if candidate y gets elected, the markets are in trouble.
The problem is that "letting political beliefs get in the way of 'Buy and Hold' has been extremely costly to investors.”
The numbers don't lie. Going back 70 years, $1,000 invested in the stock market would turn into
$27,400 today - only invested when a Republican is President
$61,800 today - only invested when a Democrat is President
$1,690,000 today - invested across all Presidents
Would you rather have $27,400, $61,800 or $1,690,000?! I think we know the answer.
It's hard, because each election season, there are new issues and new candidates. But you must remember that you are investing in the great companies in the US and the World, not in politicians and political parties.
What you can do: I love Josh Brown's last line: "In case you need the message spelled out for you, it’s that the amount of time you’re invested will ultimately trump whatever party’s political positions you may or may not agree with. Don’t be cute. It’ll cost you. Big time." (emphasis added)
Need more proof? Here's another excellent article.
Myth #2: My company stock is the best investment
You might think that because you work at the company, and because it's made them you a lot of money so far, that it's the best investment going forward.
But despite all the confidence and belief, chances are that you are probably wrong.
I can't stop thinking about these painful statistics:
4 out of every 7 stocks in the US have underperformed cash since 1926.
1 out of every 25 stocks (4%!) accounted for all the gains for the entire stock market in that time
As Ben Carlson wrote so well recently: “most stocks are crap over the very long-run but the biggest gainers more than make up for the losers.”
Chances are, your company is one of the underperformers.
What you can do: think through whether diversifying or holding (or a combination of both) makes the most sense for you.
Myth #3: If I sell my company stock, I'll miss out if the stock goes up
A big reason I see people not want to sell any of their company stock is because they are afraid of selling, and then the stock takes off.
But what most people forget is that it's very likely you will still participate in the upside.
If you sell and the stock goes up
If you have unvested RSUs, those will become a lot more valuable
If you are participating in an ESPP program with a discount / lookback provision, you will get a nice gain there
If you have stock options you can exercise, those too will become a lot more valuable
And unless you are selling everything you own, the stock you continue to hold will become more valuable too
How much to sell, and when, is very much a personal matter. But don't let potential FOMO hold you back if selling is the right answer. Chances are, if the stock takes off, you'll still do well.
What you can do: Figure out how you want to manage your stock going forward. Not sure where to start? Here's a list of potential strategies.
Myth #4: My company took out enough in taxes on my RSUs - that will be enough
This can lead you into a false sense of security, and then wham! You get hit with a surprise tax bill next April.
In most circumstances, your company will withhold 22% of your RSUs to pay your federal taxes. But most high earners have a marginal tax bracket that is higher than 22% - possibly 10 or 15% higher!
And if RSUs represent a meaningful part of your compensation, this could mean tens of thousands of dollars in future taxes that you will need to pay.
What you can do: figure out how and when you will pay the remaining tax bill.
Myth #5: I'm young and healthy - I don't need insurance or an estate plan
Spoiler alert: none of us plan on dying or getting disabled anytime soon.
So as invincible as you think you are, it's probably a good idea to have some sort of plan.
I get it - insurance and estate planning aren't sexy, or fun. They typically cover all the worst case scenarios we hope don't happen for a long, long time.
But the goal is to make sure you (and/or your family / loved ones) can handle a catastrophic event.
What you can do
Insurance - get the right amount and transfer the risk to the insurance agency. Here's a good overview on estimating how much life insurance you need
Estate planning - get the right documents in place. For starters:
Will
Power of attorney (durable and healthcare)
Advanced Healthcare Directive
Possibly a trust (depending on your situation)
Half The Battle Is Avoiding The Big Mistakes
It's tough because some of these sound good, or there might be some half-truths.
I'll end with a story.
My dad's family lives in Central Illinois, and my great Uncle was a farmer there all his life. We visited them months after a big tornado had come through the area and absolutely devastated the farm. I'll never forget his words:
"What took us 60 years to build was destroyed in 60 seconds."
Now in his case, it's kind of hard to avoid a natural disaster.
But I don't want you to undue years or decades of hard work and diligent investing because you followed one of these myths.
Avoiding the big mistakes is just as important as making the right ones.
I hope these little tips will help you navigate the noise and keep you focused on what's important.
Invest early and often.
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