In his book Narrative Economics, Yale economist Robert Shiller argues that storytelling has more of an impact on economic events than we might assume. In a domain that seems like it ought to be driven by facts and data, stories often take on a life of their own. Many stock market bubbles—and downturns—are examples of this phenomenon. More generally, financial myths and misperceptions are widespread, and navigating them can be a challenge. Below, for example, are five common myths.

“Investors should be careful when the market keeps hitting new all-time highs.” This seems like it ought to make sense. Anyone who lived through a mania like the dot-com bubble might conclude that bubbles inevitably burst, so it’s best to stand aside when that behavior manifests itself. This definitely sounds logical, but here’s the trouble: Because the stock market has always trended upward over time, on average, it’s not so unusual for it to hit new all-time highs. J.P. Morgan provides this perspective: In nearly 30% of cases when the market closes at an all-time high, that new high has represented a “floor” below which the market has never dropped more than 5%. In other words, sometimes a bubble truly is a bubble, but that’s not always the case. And it’s difficult to tell the difference.

“In my parents’ generation, people could live on the income from their portfolios, and things were better then.” Look at your investment statement, and my guess is that dividends aren’t the main attraction. Some stocks don’t pay dividends at all, and on average, the S&P 500 is currently yielding just 1.5%. That stands in contrast to history. Between 1926 and 2023, dividends accounted for nearly 40% of the total return of the S&P 500. As a result, retirees used to talk about living off the income from their portfolios. Investors nostalgic for that era might be less enthused about today’s more meager dividends. But you shouldn’t be concerned.

It’s not that companies are less profitable today. To the contrary, public company profit margins have increased over time. But companies have changed how they allocate those profits. In the past, a much greater portion was paid out to shareholders in the form of dividends. Today, companies allocate roughly equal amounts to dividends and to buying back company shares. Why the shift? It roots to a change in the way companies compensate their executives. Today, there’s a much greater emphasis placed on stock-based compensation, and that’s created more of an incentive for managers to see their companies’ stock prices rise. The result: Companies today allocate more cash to buying back shares than to dividends than they used to because buybacks have the effect of driving up share prices (because the same profits are allocated across a smaller number of shares).

Should investors be upset at this change? In my view, no. In aggregate, buybacks now account for about 1.5% of the return of the S&P 500, with dividends providing another 1.5%. Taken together, that 3% isn’t far off from the 4% that investors historically received as dividends. Dividends, in other words, may be lower than in the past, but investors are no worse off because “total returns”—that is, price appreciation plus dividends—are no lower.

“There’s a penalty if I claim Social Security while I’m still working.” You may have heard that there’s a penalty imposed if you claim Social Security while you’re still working. You may have even heard the formula, which sounds punitive: Social Security will deduct $1 for every $2 earned. While this is technically true, it overlooks some important details. First, this penalty is imposed only when Social Security is claimed before Full Retirement Age (FRA), which is between ages 66 and 67, depending on the year you were born. Second, this isn’t a true penalty. Those dollars aren’t lost forever, and after a worker reaches FRA, Social Security adds back the amounts that were withheld earlier. Also, and importantly, any year in which you work will add to your Social Security earnings record, and that could potentially increase your benefit. The bottom line: If you want to work part-time in retirement while receiving Social Security, you shouldn’t worry.

“It’s a mistake to claim Social Security before age 70.” Another misconception about Social Security is the idea that it’s a mistake to claim benefits before age 70. That’s when the largest benefit check is available, and for that reason it’s become a sort of personal finance commandment that everyone must wait. But this should be viewed as more of a guideline than a rule. That’s because, when you wait, you’re also taking a risk of another sort: For each year that you don’t claim benefits, your benefit needs to be that much larger down the road in order to make up for those earlier years. And because of the time value of money, that “breakeven” point is pushed out even further. For many people, it makes good sense to take this risk, since the breakeven point tends to be around age 78, and folks who make it to 70 can expect to live until their early- or mid-80s. But if you’re married, this math changes. That’s because it’s only worthwhile for both spouses to delay until age 70 if both spouses outlive that breakeven point. That’s why it can make good sense for one spouse to claim earlier than 70, and you shouldn’t let anyone call that a “wrong” decision.

“The estate tax won’t be a problem for me.” Under current rules, only a tiny fraction of estates—just 0.2%—are large enough to owe any estate tax. That’s because the Federal estate tax applies only to those with more than $13 million in assets, or $26 million for a married couple. Even after the rules change in 2026, that figure will still be very high, at $6.5 million, or $13 million for a couple. For that reason—and because there are other lightweight planning strategies available—many people dismiss the idea of formal estate tax planning. For some people, that makes sense—but it depends. Twelve states and the District of Columbia impose their own estate taxes, and six states have inheritance taxes, meaning that they tax the recipient of a bequest. Making this even more of a challenge, many jurisdictions tax estates with as little as $1 million. Simply owning a home in those states might push an individual above the threshold. And while state estate tax rates are lower than the 40% Federal rate, they are not immaterial—with top rates between 10% and 20% in many cases. For that reason, it’s worth researching the rules where you live.