One of the reasons so many people struggle with their investments is because many in the field of finance tend to perpetuate myths, rules of thumb and assumptions that just aren’t true. Here are some that come to mind that can be harmful to those outside of the financial arena who are just trying to understand how things really work:

Written by Ben Carlson

1. Investing is about finding new opportunities and security selection.

In reality, new ideas and security selection are overrated. Portfolio management is really about risk management and portfolio construction. If you can’t get these things right it won’t matter how many new opportunities or stock picks you come across. Those are just tactics, not a portfolio.

2. 200 page quarterly reports are a good idea. 

Charlie Munger once said, “Anytime anybody offers you anything with a big commission and a 200 page prospectus, don’t buy it.” The same could be said about advisors, consultants or money managers who supply endless pages of performance or portfolio reviews. I’ve seen countless quarterly performance reports in excess of 100 pages. Who reads these things? They’re basically a way for a firm to say, “Look, we’re doing something on your behalf, even if it’s worthless busy work you’ll never bother reading anyways.”

3. Clients want to be impressed. 

Finance people have a nasty habit of using jargon to talk over people’s heads under the assumption that clients are looking to be impressed. Some probably are, but most people really just need a better understanding of the complexities involved with the markets and their own investments. It’s more impressive when you can communicate your message in a way that anyone can understand.

4. People care about risk-adjusted returns. 

The relationship between risk and reward is one of the most important ones to understand in all of finance, but like all good things, it can be taken too far. Investment people place a high premium on risk measurement, but not enough on actual risk management. Just because something looks good in a formula does not mean it will help someone achieve their financial goals. Yes, volatility matters but you can’t become a slave to some meaningless risk-adjusted return formula because it looks good in a textbook.