There are flawed assumptions about every subject under the sun, but it seems to be a particular problem with investing. Here are three that even many seasoned investors get wrong.

Don't you believe for a minute that:

1. "If you diversify your portfolio, you can't lose money." Yes, you can. That's why one of our rules of investing is: If you can't afford to lose the money, don't invest it!


2. "The people who buy stocks based on what the market is doing at the moment are investors." Newspaper stories often get the term wrong, as when they say, "Investors scrambled to unload Motorola shares." These are not investors; they're traders. Investing means you put the money in and let the share price rise over time. Investors don't buy today on good news and dump tomorrow on bad news; that's a trader.



3. "A wise investor buys and holds forever." Just as foolhardy as trading at every downturn is holding on to a stock that has lost its way. Your grandfather's belief in loyalty to a solid stock, such as AT&T, was considered sound back in the days when people called it Ma Bell.
   

   Look what's happened since!

   In today's economy, new technologies can spring up overnight and make a company that is #1 in its field today obsolete tomorrow. Think of the old-fashioned wired-down telephone. If you were holding on to AT&T today, you'd be as shortsighted as the guy who, back in 1900, bought stock in the most successful buggy-whip-manufacturing company–and held it even after Henry Ford came along with the horseless carriage.

   "Buy and hold" is a joke unless you have the highest-quality stocks. And even then, stay on top of them to make sure they remain quality stocks.

We're here to help protect your money. Don't fall for these other myths:

• Five Retirement Myths
• Hotel Keycards and Urban Myths
• 5 Top Financial Aid Myths