If all advisors painted a true pictureof the risks of investment it would be a lot harder to sell. Only selling half the story or simplifying the investment story is common in the industry.

Long term return

Everyone has seen those long term returns from stock markets that make the stock market look like a sure thing. What is not pointed out is that these graphs often show the returns from the bottom of a market to the top of a market. Investors also need to be presented with the type of returns that can occur from different market levels. Investment is not always a rosy experience and individuals need to be able to cope with negative situations as and when they arise. Education and proper portfolio structure, planning and management underpin the management of expectations through different market conditions.

Long term return is guaranteed! (Really?)

It is often implied that you will get a return from equities irrespective of the level of the stock market you invest in. All you need do apparently is take a long term view. Unfortunately, this is incorrect. Investing at peak market levels can severely affect your financial security for decades.

Most of the time, though, at least historically, investors have been able to invest and have received returns adequate for the higher level of short term risk. This is one of the major arguments against market timing.

You cannot time the market!

Trying to time the market is a fool’s game for the majority of investors.

Unfortunately this simple lesson is taken to mean that you should not adjust your initial investment strategy to take account of valuation risks in the market place. Although it is next to impossible to work out when a market is going to fall or when market is about to stop falling and start rising, it is not impossible to determine whether something is good or bad value. The trouble is, this requires investment expertise and disciplines which the industry does not possess in sufficient depth. Investors should not be invested from cash into the market irrespective of market and economic valuations.

Problems of timing are more often than not encountered with managers and individuals lacking in investment and valuation disciplines. Investment timing risk is also a risk aversion and it needs to be assessed.

The trouble is, the time everybody needs to be investing, when the news is bad and markets have fallen heavily, is just when those who have delivered simple messages of "you cannot time the market" lose their nerve and caution holding off.

Asset allocation

Asset allocation is also banded about as if it were some magical formula for return. While it is correct that you can get the vast majority of your return from a broad allocation to a market or market sector, asset allocation is not in itself an investment discipline or a portfolio construction and management methodology. Without valuation expertise under pinning asset allocation, asset allocation is just as likely to end up losing money as making money. Asset allocation should always be the result of valuation, allocation and management disciplines.