When it comes to building and preserving wealth, there’s no shortage of advice from talking heads, friends, media, or even family—some may be sound advice, but much of it may be misleading and harmful. A lot of people believe they need to take significant risks to realize big rewards, that beating the market is the key to success, or that taxes don’t make a big enough difference to matter. These myths can lead to costly mistakes, putting your long-term financial security at risk.
At BCR® Wealth Strategies, we take an evidence-based approach to wealth management, focusing on strategies backed by research, not hype. If you want to make smarter investment decisions, it’s time to separate fact from fiction.
In this article, we’ll break down six of the most common myths about growing and protecting wealth, and reveal the truth that can help you make more informed financial choices.
Myth #1: Big Risks Lead to Big Wealth
Many people believe taking significant risks is the fastest way to build wealth. We’ve all heard stories of someone who made millions on a speculative stock, a cryptocurrency bet, or a startup investment. These stories fuel the myth that high-stakes gambles are the key to financial success.
What we don’t hear about are the countless individuals who lost everything trying to hit home runs in the securities markets.
The reality? More Wealth is lost than gained by making high-risk investment bets.
The easiest way to turn $2 million into $1 million is to make reckless investment decisions. While a few speculative investors strike it big, most lose significant amounts of their assets due to excessive risk exposure.
Instead of gambling on unpredictable investments, consider focusing on strategies that preserve your capital with the opportunity to produce reasonable amounts of long-term appreciation. Diversification, disciplined asset allocation, and evidence-based investment management can provide a more disciplined approach to capturing long-term market returns without exposure to excessive amounts of risk.
At BCR Wealth Strategies, we help clients avoid the pitfalls of speculation and focus on prudent financial plans that prioritize steady, long-term wealth accumulation. Taking calculated, measured risks, rather than betting big, can help build a foundation for your financial independence.
Myth #2: I Always Win in the Market
People tend to remember their wins more than their losses, a bias known as selective memory or sometimes as selective amnesia. If you’ve ever bragged about a stock that doubled but forgot to mention the one that tanked, you’re not alone.
Even well-known investors make big financial mistakes. Markets are unpredictable, and short-term success is rarely a reliable indicator of long-term skill. In fact, it can be luck by being in the right place at the right time. Research shows that consistently timing the market (getting in and out at the right time) is nearly impossible to achieve. Yet many investors would like to believe timing can be achieved by particular financial advisors.
This overconfidence leads to risky behaviors, such as making excessive bets on individual stocks or abandoning a long-term investment strategy in pursuit of quick gains. These decisions often result in underperformance, missed opportunities, or frequent losses.
A sound investment plan isn’t about every investment being a winner, it’s about creating a balanced, diversified portfolio designed to weather market fluctuations and deliver consistent, long-term growth.
You win by achieving your goals!
At BCR® Wealth Strategies, our team of Birmingham CFP® professionals can help you avoid making emotional decisions that can impact your long-term results. Instead, we work with you to implement disciplined, evidence-based investment strategies.
Myth #3: Active Fund Managers Always Beat the Market
Some investors believe hiring a well-known fund manager can lead to consistent results.
Many less experienced investors would like to believe they have hired financial professionals who can consistently outperform the securities market indices, for example, the S&P 500, or artificial benchmarks that represent the combined performance of various asset classes.
Nothing could be further from the truth. Most managers fail to beat indices and benchmarks over longer periods – in particular, after deducting all their layers of expenses.
How real is this issue?
For decades, multiple studies have shown that almost 90% of actively managed equity funds underperform their respective indexes over rolling 10-year periods.
Why does this happen?
- First, markets are incredibly efficient, meaning that stock prices reflect all available information almost instantly. This makes it extremely difficult for any manager to consistently identify “undervalued” stocks before the rest of the market.
- Second, high fees associated with active management, such as advisory fees, management fees, trading costs, custodians, and commissions, can further erode returns over longer periods.
Investors often assume that past performance is a good predictor of future success, but research shows that very few active managers outperform consistently over multiple market cycles.
The saying goes, “There are no crystal balls on Wall Street.”
Instead of chasing high-cost, beat-the-market funds, a better approach is to rely on evidence-based investing, prioritizing low-cost investment vehicles, high levels of diversification, and fact-based strategies.
Our team of Birmingham financial advisors focuses on investment management strategies backed by Nobel Prize-winning research. We can help you build efficient, cost-effective portfolios that seek to maximize long-term returns.
Myth #4: Diversification Limits My Potential Returns
Many investors believe that spreading their money across multiple investments will dilute their returns. They think concentrating on a few high-performing stocks or sectors will lead to more significant gains.
While it’s true that a single stock can sometimes outperform the market, betting too heavily on a few investments significantly increases risk.
Diversification is not about limiting returns but reducing unnecessary risk while capturing market growth. A well-diversified portfolio includes different asset classes, sectors, and geographies, ensuring that no single investment can derail your financial future.
Consider this: if you put everything into one company, and that company collapses, your portfolio could take a significant hit. But a downturn in one area won’t wipe you out if your investments are spread across multiple industries and asset types.
Research shows that diversification helps maintain steady, long-term growth while minimizing volatility. It doesn’t mean settling for lower returns, it means structuring your portfolio to provide risk-adjusted returns that align with your financial goals.
Don’t miss our short video on “Tax-Smart Investing.”
Myth #5: My Portfolio’s Return Is What Matters Most
Many investors measure success by their portfolio’s pre-tax return, assuming that higher numbers automatically mean more wealth. But what matters is the after-tax return, the amount you keep after taxes, fees, and other costs.
Without tax-efficient investing, a portfolio that appears to be performing well can lose significant value to unnecessary tax liabilities. Capital gains taxes, dividend taxes, and poor asset location decisions can all erode returns. For example, holding tax-inefficient investments in taxable accounts instead of IRAs or Roth accounts can lead to higher tax bills and lower net returns.
Strategies like tax-loss harvesting, asset location, and smart rebalancing can help optimize after-tax returns. Placing tax-efficient investments in taxable and tax-heavy retirement accounts can minimize tax drag and improve long-term growth.
Another overlooked factor is investment costs. Actively managed funds often carry higher fees, which can reduce returns without adding real value.
Myth #6: Risk and Reward Can’t Be Balanced
Many investors believe they must choose between safety and growth, assuming higher returns only come with excessive risk. This misconception leads some to take more risk than they can afford, while others stay overly conservative, missing out on meaningful long-term gains.
The truth is risk and reward can, and should, be balanced. A well-structured investment portfolio considers your time horizon, financial goals, and risk tolerance, allowing for growth while managing downside risk. Strategies like diversification, factor-based investing, and strategic asset allocation help smooth out volatility without sacrificing potential returns.
For example, instead of chasing risky stocks or speculative investments, a balanced approach might include a mix of equities, fixed income, and alternative assets, each playing a role in growth, stability, and risk mitigation. Rebalancing ensures that your portfolio maintains its intended level of risk and reward as markets shift.
At BCR Wealth Strategies, we apply evidence-based investment management to align risk with expected return. With careful planning, you don’t have to gamble for growth, you can intelligently manage risk while maximizing wealth over time. The right balance leads to steady, sustainable success.
Connect with our team of Birmingham financial advisors to learn more about protecting what you’ve worked so hard to build.
