Straight talk on three investing myths

Ah, the siren’s call of an urban myth. When it seems like everyone you know has heard the same story, it’s easy to convince yourself it is true. But when it comes to investing, listening to a myth can lead you to invest in a way that doesn’t suit your individual needs, or even to avoid investing altogether.

Now is the time to get the facts on three common myths about investing.

Myth #1: Stocks are too risky.

Reality: One of the best ways to give your money a chance to grow over the long term is by investing in stock funds.

U.S. stocks have consistently earned more than bonds over the long term.

  • In fact, stocks have returned an average of 11.1% each year for the last 50 years, while bonds returned 6.6% and short‐term investments returned 4.3%.1
  • What this shows is that stocks typically offer more potential for growth over the long term, despite regular market ups and downs. That's why investing in stock funds is so important when saving for a long-term goal like retirement.

And while market downturns can be scary, you can take the edge off your fears by remembering that the market is cyclical. It has highs and lows. Unless you’re expecting to retire in the next five years or so, your savings in the UC 403(b), 457(b), and DC Plan is there for the long haul. The key is to wait through the fluctuations, trust your strategy, and stay the course.

As a general rule, the longer you have to invest your money, the more you may want to invest in stock funds, because time can help smooth out short-term ups and downs.

  • Consider this: Between 1974 and 2023, investors who held a one-year investment in the stock market had a 19.9% chance of loss. Holding that stock investment for five years reduced the chance of loss to 7.4%. And holding it for 10 years reduced the chance of loss to just 3.3%.2
  • Of course, the mix of stocks, bonds, and short-term investments that’s appropriate for you should be based on your tolerance for risk, your financial situation, and when you expect to start withdrawing money from your account.

How $100 Grew Over 50 Years (1974-2023)

Stocks Bonds Short-term Investments
$19,188
11.1% average annual return		 $2,464
6.6% average annual return		 $837
4.3% average annual return
Source: Fidelity Investments & Morningstar Inc, 2024. Hypothetical value of assets held in untaxed portfolios invested in US stocks, bonds, or short-term investments. Actual historical data were used to compute the growth of $100 invested in these portfolios for the 50-year period ending in December 2023. Stocks, bonds, and short-term investments are represented by total returns of the IA SBBI US Large Stock Total Return from 1/1926-1/1987 and DJ US Total Stock Market Total Return from 2/1987-12/2023, US Intermediate -Term Government Bond Index from 1/1974 - 12/1975; Bloomberg Aggregate Bond from 1/1976 - 12/2023, and 30-Day T-Bills. Past performance is no guarantee of future results.

Myth #2: Investing is hard.

Reality: UC Pathway Funds make it easy.

Investing for retirement may seem overwhelming, but it doesn’t have to be. The UC Pathway Funds make investing simpler by providing a professionally managed mix of stock funds, bond funds, and short-term investments, all in one fund. These funds are designed for investors who want to simplify allocation decisions by using a professionally managed, pre-defined asset mix. Here’s how they work:

  • Each UC Pathway Fund has a year in its name—its “target date.” You choose one fund based on the year closest to the date you expect to retire—or when you will start withdrawing money from your 403(b), 457(b), and/or DC Plan account.
  • Over time, each fund is regularly rebalanced to grow more conservative as it reaches its target date. For example, if you’re thinking about retiring at age 65 in 2044, you might consider the UC Pathway 2045 Fund. As 2045 gets closer, the fund becomes more conservative—generally investing less in stocks, and more in bonds and short-term investments.
  • The result: You get an investment mix that’s appropriate for someone your age—today and when you’re about to retire. Note that there is also a target date fund option for participants already in retirement—the UC Pathway Income Fund.

Myth #3: If a little is good, a lot must be better.

Reality: It is possible to be over-diversified.

We’ve all heard the saying “Don’t put all your eggs in one basket.” It’s generally sound advice for investors. After all, holding investments that respond differently to market changes can serve as a sort of shock absorber. When one investment is down, another may be up. But it is possible to be over-diversified. Here are two traps to avoid:

  • Investing in multiple funds in the same investment category. Generally speaking, funds that invest in the same way are affected by the same kinds of market events. For example, if you hold three large cap stock funds, those funds will generally move in the same way at the same time. The performance of each fund may vary a little from the others, but practically speaking, an event that affects one large company will affect others as well. Different-sized companies tend to lead the market at different times, so a healthy strategy considers stock funds with small, medium, and large market capitalizations. Like bond funds? Consider both government and corporate bond funds with different yields, maturities, and credit quality. Finally, because financial markets around the world respond differently to regional and global events, consider whether international investments make sense for you.
  • Investing in multiple UC Pathway Funds. Each UC Pathway Fund is a target date fund designed to give you an all-in-one investment mix that grows more conservative over time. That means you only need to hold one UC Pathway fund to be invested in an age-appropriate mix of stock funds, bond funds, and short-term investments. Generally speaking, when you hold more than one UC Pathway Fund—or hold a UC Pathway Fund plus other funds in the UC RSP fund menu—you may be duplicating exposures and not taking full advantages of the UC Pathway Funds.

The Bottom Line

A blended approach that includes different types of investments—stock funds, bond funds, and short-term investments—can help you meet your unique objectives. Just make sure that your mix reflects your own financial situation, your tolerance for risk, and the amount of time you have until you start withdrawing money from your accounts. In general, it’s easier to understand how your investment mix is doing if you keep it to a manageable number of holdings.

If you like the idea of a professionally managed, all-in-one investment mix based on a target date, a UC Pathway Fund could be just right for you. Learn more about the UC Pathway Funds.

1 Source: Fidelity Investments and Morningstar Inc, 2024. This chart represents the average annual return percentage for the investment categories shown for the 50-year period of 1974–2023. Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. Stocks are tracked by the IA SBBI US Large Stock Total Return index tracks the monthly return of S&P 500. The history data from 1926 to 1969 is calculated by Ibbotson. DJ US Total Stock Market Total Return index measures the performance of all US equity securities with readily available prices. It represents the top 95% of the US stock market based on market capitalization. The index is float-adjusted market capitalization weighted. Bonds are represented by US Intermediate -Term Government Bond Index from 1/1974 - 12/1975, Bloomberg Aggregate Bond from 1/1976 - 12/2023. The U.S. Intermediate Government Bond Index, which is an unmanaged index that includes the reinvestment of interest income and Bloomberg U.S. Aggregate Bond Index is a market value–weighted index that covers the U.S. fixed-rate investment-grade bond market with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with maturities of one year or more. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government. Inflation is represented by, the Consumer Price Index (CPI) is a widely recognized measure of inflation, calculated by the U.S. government. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. U.S. Treasury bills maintain a stable value (if held to maturity), but returns are generally only slightly above the inflation rate. You cannot invest directly in an index.

2 Source: Fidelity Investments & Morningstar Inc, 2024. Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. The chart is based on the rolling cumulative annual returns of the IA SBBI US Large Stock Total Return index from 1/1926-1/1987 DJ US Total Stock Market Total Return index from 2/1987-12/2023. The IA SBBI US Large Stock Total Return index tracks the monthly return of S&P 500. The history data from 1926 to 1969 is calculated by Ibbotson. Dow Jones Total Market index measures the performance of all US equity securities with readily available prices. It represents the top 95% of the US stock market based on market capitalization. The index is float-adjusted market capitalization weighted. It is not possible to invest directly in an index. Stock prices are more volatile than those of other securities.

The investment risks of each target date Pathway Fund change over time as each fund's asset allocation changes. Assets held in the Pathway Funds are subject to the volatility of the financial markets, including equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high yield, small cap, and foreign securities. Principal invested is not guaranteed at any time, including at or after their target dates.

Before investing in any investment option, please carefully consider the investment objectives, risks, charges, and expenses. This and other information on the UC Retirement Savings Program Fund Menu is available, free of charge, online at www.netbenefits.com or by calling Fidelity® Retirement Services at 1-866-6UC-RSVP (1-866-682-7787). This and other information on mutual fund options that are part of the UC Retirement Savings Program Fund Menu and other mutual funds or exchange-traded funds outside the UC Retirement Savings Program Fund Menu can be found in the prospectus, offering circular, or, if available, a summary prospectus, which can be obtained, free of charge, at the same website and toll-free phone number. Read the information carefully before you invest.

Investing involves risk, including risk of loss.

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