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August 07, 2024 at 09:23 AM
Conventional wisdom can be more conventional than wise.
John Rekenthaler, Morningstar vice president, research, recently highlighted three common “investment fallacies,” including his belief, fed by portfolio managers decades ago, that the power of indexing was limited to blue-chip stocks.
“I have since learned that investment professionals say many things that sound plausible but cannot withstand close analysis,” Rekenthaler wrote. “This was one of them.”
ThinkAdvisor asked advisors what investing or financial planning conventional wisdom they realized was untrue, and how they help clients unlearn it.
Popular financial planning guidance is often based on assumptions — for example, that clients want to have children and leave an inheritance, said Jay Zigmont, the founder of Childfree Wealth.
“Since my clients are childfree, much of the conventional wisdom does not fit them,” he said. “Core financial advice, such as needing to buy a house to get ahead, just doesn’t fit.”
The same goes for life insurance, he said. “There is little or no need for my single childfree clients, and most dual-income clients don’t need the second income so protecting their income with life insurance doesn’t make much sense.”
See the accompanying gallery for 14 commonly accepted financial beliefs that advisors found to be unwise.
Some responses are edited for length or clarity.
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