Myth 1: Market volatility is your biggest enemy

The truth is, you should be more worried about inflation. That's because inflation can cause your purchasing power to be eroded.

Looking at the chart, you can see that with a 2% annual rate of inflation, $10,000 today will be worth just over $6,000 in 20 years. And that's a fairly conservative rate of inflation. Although inflation is currently at reasonable levels, the future holds no guarantees. Imagine if inflation actually increased at an average rate of 6%. In 20 years, that $10,000 would be worth barely $4,000.

Myth 1 Myth 2 Myth 3 Myth 4 Myth 5 Myth 6 Myth 7 Myth 8 Myth 9

Here's a concrete way of looking at inflation. Imagine that you went to the grocery store in 1992 and loaded up your shopping cart with $10 worth of meat, $10 in dairy products and eggs, $10 in bakery products, and – because you were health conscious even back then – $20 in fresh vegetables. Your total grocery bill was $50.

Now it's 13 years later – 2005, because that's the latest data available from Canada's Consumer Price Index – and you buy exactly the same amount of meat, dairy, eggs, bakery products and vegetables. But now it costs you $62.54 instead of $50.

An extra $12 or $13 may not sound like much, but how many times do you go to the grocery store in a year? Your investment portfolio has to earn enough to beat inflation and grow to meet your needs – because every year, each dollar you've saved won't go quite as far.

But what about market volatility? When it comes to ups and downs in the market, as investors we're probably our own worst enemies. Most investors are only interested in investing in a particular fund or industry when it's hot or in favour. Truth is, when a sector is under-researched and out-of-favour, it often represents the better buying opportunity.