| Fiction | Facts |
|---|---|
| The expectation of a stock market correction justifies staying on the sidelines. | If you're anticipating a stock market correction, you're probably right, as declines of at least 5% occur virtually every year; 10% six years out of ten; and around 15% four years out of ten. Nevertheless, history shows that investors willing to stay invested through these fluctuations are well advised, as even the average return in years marked by a correction of 10% or more is positive. Thus, investors whose investment horizon allows for patience are probably better off accepting rather than fearing the inevitable periods of correction, as these are, in some ways, the price to pay for achieving their return objectives in the long run. |
| Investors contemplating investing a large amount (e.g. an inheritance) are better off spreading their entry over time (dollar cost averaging) rather than committing the full amount immediately (lump sum). | It depends. But since 1995, you would have been better off investing the full amount right away 85% of the time, while the decision to split the investment evenly over twelve months would have cost an average of 3% in lost returns. This simple study assumes a balanced portfolio* of Canadian bonds, Canadian equities and global equities. Of course, no one wants to put money to work right before a market correction, this myth being a prime example of one of the most well documented behavioural biases in finance: loss aversion. Yet think of it this way. Would you invest in a strategy that loses 8 times out of 10 and by an average of 3%? After all, these are the historical properties of dollar cost averaging. |
| It is more prudent to invest most of your portfolio in companies domiciled at home and thus of greater familiarity than to "risk it" with foreign corporations. | While predominantly investing in domestic equities might seem sufficient and feel comforting, such a portfolio could, in fact, be just the opposite. Do not confuse familiarity with safety. For instance, Canada's stock market's high concentration in some of the most cyclical sectors and its relative lack of growth-oriented companies poses a risk that can result in unpleasant surprises if left undiversified. The good news is that there are plenty of opportunities abroad to complement for such risks. After all, Canadian stocks only represent 3% of the global equity investment universe! |
Facts & fiction
Facts & fiction - Fall 2026
Here are 3 of the 13 common investment beliefs deconstructed by our CIO Office.
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