These days it has become fashionable to do articles on “investment myth busting”. Since I cannot claim to have started this myth, I need not end it either.

Let us examine them slowly (One is what we can handle in one day)

Myth 1: Stock market investments will always outperform bonds and fixed-return avenues in the long run.

This is such a fantastic statement to make, that you can take any stand that you want. Over a 12-15 year period this has been true in most markets. This has been totally untrue if you invested at the Harshad boom – it would have taken you at least 10 years to know whether it is right or no. Even in International Markets (US in particular) you can find pretty long stretches of time (say 10 years) when bonds would have given better returns.

I hope I have confused you enough. What I have said here is absolutely correct, and totally useless. You cannot go back in time and decide on your asset allocation. Unfortunately, you have to allocate BEFORE (in advance) and you can analyse post-event. Fund managers have to do it first, analysts have to analyse later.

The most important lesson, if you ask me is not whether equity gives better return or debt gives better return over the next ‘n’ years. That is difficult to guess, and the MOST important thing to guess is ‘exactly’ what will happen and in ‘exactly n years’. For example if you invested in 2009 for 9 years – and the result was debt outshone equity in 7 years – what will you do next? Will you now shift to equity (for 2 years) or stay on in debt ? Then some analyst will tell you “In 9 years if you were in equity you would have got 13% return (tax free) but you have got only 10.8% return (post tax) in debt”. How will you react? Scream, panic? tear your hair? Cry, crib, change your advisor,… All that will make you happy but not get back time. Nor your money.

Also when one invests in equity do a SIP, re-invest your dividends (or opt for a growth scheme), understand risk (why inflation makes ppf risky), keep studying the classics – and you will make money – again in the long run. I dare say my definition of long term is 7 years in a fund with 70% equity and 30% debt.