Take investment-related aphorisms with lots of salt

THERE are rules of thumb and aphorisms that investors accept without investigating their merits based on historical evidence. For example, many assume that buying individual bonds is safer than owning a bond mutual fund or ETF because it will shield them from interest-rate risk. The idea is that bond funds can fall in value but individual bonds will mature at par, so you don't have to worry about losses when you hold them directly.

This misses the point that bond funds are simply the sum of the individual bonds they hold. Investors who hold individual bonds to maturity will still see losses in the meantime as their bonds are marked to market if interest rates rise substantially. By holding bonds to maturity, investors will get all of their money back, but if interest rates have risen, inflation has likely risen as well, meaning their dollar now has less buying power. Risk never completely goes away in the markets, so this strategy is really just trading one risk for another.

Here are a few more market-related arguments that don't add up: Low volume rallies spell trouble for stocks. People have been warning about low-volume rallies since the market bottomed in 2009. The idea here is that if trading volume is lower than normal, then institutional investors must not be participating in the rally. This makes no sense. Trading volume in the 1950s was about three million shares a day on the New York Stock Exchange. Over the past three months, the SPY ETF alone has traded an average of about 62 million shares a day. More investors turning over shares doesn't have anything to do with the direction of the markets. In fact, investors tend to trade more when stocks are falling, because that's when people panic.