Investors will be ‘miles ahead’ if they avoid these 3 things: expert

Barry Ritholtz, the chairman and chief investment officer of Ritholtz Wealth Management, has recently published a new book titled “How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth — And How to Avoid Them.” In this book, Ritholtz delves into the history of investing, drawing insights from anecdotes across pop culture and finance to illustrate the disconnect between what people think they know and what they actually know.

Ritholtz reflects on the challenges he faced while writing his first book, “Bailout Nation,” during the 2008 financial crisis. He recalls the constant turmoil of that period, with a different company facing crisis every week. In contrast, writing his new book was a joy, thanks to the benefit of hindsight and the ability to analyze past events with clarity.

In an interview with CNBC, Ritholtz shared his insights on how to be a better investor by avoiding common mistakes. He emphasized the importance of skepticism in the face of financial advice, understanding the power of compounding, and avoiding emotional decision-making. By steering clear of bad ideas, bad numbers, and bad behaviors, investors can gain a significant advantage over their peers.

Ritholtz also discussed the prevalence of bad financial advice, pointing out that not all investment opportunities are as successful as they may seem. He highlighted the misconception that finding a successful investment is easy, noting that for every “Hamilton” or Nobu, there are countless failures in the market.

One of the recurring themes in Ritholtz’s book is the fallacy of the “$5 coffee” financial advice, which suggests that saving small amounts of money daily can lead to significant wealth accumulation. Ritholtz debunked this notion, stating that if a $5 latte is the deciding factor in one’s retirement savings, then there are deeper financial issues at play.

Overall, Ritholtz’s book offers a valuable perspective on investing, drawing on lessons from past events and behaviors to guide readers towards making better financial decisions. By learning from the mistakes of others and avoiding common pitfalls, investors can position themselves for long-term success in the market. In the world of personal finance, it’s easy to get caught up in the day-to-day spending decisions. Should you splurge on that $5 latte or save the money for a rainy day? But financial expert Barry Ritholtz reminds us that when it comes to long-term financial planning, the focus should not only be on spending but also on income and investment growth.

Ritholtz emphasizes the importance of looking at the bigger picture when it comes to financial planning. While saving money on small purchases like lattes can add up over time, it’s equally important to consider how your income will grow over the years. As a 30-year-old, it’s essential to think about what your income will look like at 60 and how your investments, such as your 401(k) or college savings plan, will have compounded over the same period.

One of the key insights that Ritholtz shares is the purpose of money. Money is not just a means to buy things; it is a tool that can alleviate financial stress, create options, and provide freedom. Having enough money means you can pay your bills, provide for your family, and have the flexibility to choose how you spend your time.

When it comes to investing, Ritholtz advocates for simplicity and long-term thinking. He echoes the advice of investing legend Jack Bogle by recommending investing in broad index funds to capture the overall market returns. By focusing on a diversified portfolio and avoiding frequent trading, investors can benefit from the power of compounding over time.

Ritholtz also points out the incredible wealth-building potential of compounding, citing Warren Buffett’s exponential growth in wealth over the years. Buffett’s fortunes doubled in the past seven years, showcasing the magic of letting investments grow steadily over time.

In conclusion, Ritholtz’s insights remind us that while small spending decisions matter, long-term financial planning, income growth, and investment strategy are equally crucial. By understanding the purpose of money, simplifying investment decisions, and harnessing the power of compounding, individuals can set themselves up for financial success in the years to come.