If investing were purely rational, everything would be much simpler.
Instead, we’re often held back by myths, cognitive biases, and emotional traps that distort our decision-making.
S&P 500 average 1-, 3-, and 5-year returns since 1950: investing at all-time highs vs. other days
Source: FactSet, Standard & Poor’s, Ritholtz AM – data as of June 25, 2025
In investing, as in life, we’re often our own worst enemy. If we could act with discipline—ignoring short-term noise and overcoming the biases that cloud our judgment—our long-term results would likely surpass those of the average investor.
However, our minds tend to play tricks on us. We take mental shortcuts that speed up decisions but don’t necessarily make them better. Or we act on instinct—trusting intuition, which is often unreliable when it comes to financial choices. Let’s explore some of the most common misconceptions that derail investors from the right path.
When an index reaches new highs, it’s natural to wonder how much further it can rise or whether valuations are stretched. Yet, historically, markets that hit new highs often continue to set even higher records.
Selling simply because prices are high—without a disciplined plan—can mean missing out on future gains. The truth is that timing the market is nearly impossible. Even if you managed to sell before a correction, re-entering at the right moment is just as difficult and often leads to missed opportunities.
Over the decades, the average holding period for stocks has fallen sharply—a result of both technological innovation and behavioral change.
The rise of algorithmic trading, electronic platforms, and the elimination of fixed commissions have made trading faster and cheaper, encouraging frequent buying and selling rather than long-term investing. At the same time, today’s culture of instant gratification fuels impatience. Constant market updates, global crises, and 24/7 access to information make it harder to stay invested for the long run.
In short, the modern market moves at lightning speed: more data, more access, but far less patience.
Average holding period of stock investments: from 8 years in 1960 to 6 months in 2020
Source: Brian Feroldi / Trahan Macro Research
Despite the shorter attention span of investors, history shows that time—not timing—is what truly drives returns. Selling out of fear during downturns often locks in losses, especially for fundamentally strong companies.
There’s no perfect moment to invest; the key is to stay committed to your plan. Consistency and patience are what allow wealth to compound over time.
S&P 500: frequency of positive returns over different investment periods
Source: FactSet, Standard & Poor’s
As the data shows, the likelihood of positive performance increases the longer you remain invested. Of course, longer horizons mean facing bear markets and volatility—but those are natural parts of investing. What matters is staying the course.
Another common behavioral pitfall is home bias—the tendency to invest primarily in domestic companies because they feel familiar or “safer.” We might assume that knowing a local brand reduces risk, but that’s an illusion. What matters isn’t familiarity—it’s the strength of the company’s fundamentals.
Investing only in domestic markets exposes investors to country-specific risk. Geographic diversification helps balance those risks and smooth out performance over time.
In reality, stock investing can suit a wide range of investors—depending on their goals, time horizon, and risk tolerance. While market movements can be unpredictable, that doesn’t make investing a game of chance.
With a disciplined strategy, thoughtful diversification, and a long-term perspective, investing becomes a rational path to wealth creation—not speculation.
No one can predict the markets’ short-term direction, but history consistently shows that long-term, diversified investing is one of the most effective ways to build financial security.
Ultimately, success doesn’t depend on finding the perfect moment to buy—it depends on time in the market, not timing the market.
