Identifying Subpar Financial Guidance and Creating a Durable Investment Portfolio, as Perceived by Barry Ritholtz
In the ever-changing landscape of finance, Barry Ritholtz, the chairman and chief investment officer of Ritholtz Wealth Management, offers a refreshing perspective on investing. His new book, "How Not to Invest: The Ideas, Numbers, and Behaviors that Destroy Wealth - and How to Avoid Them," serves as a guide for investors seeking to avoid common pitfalls and achieve long-term success.
Ritholtz advises investors to approach advice with caution, particularly when it comes from sources such as experts, forecasters, Wall Street strategists, analysts, media pundits, fund managers, and others who may have hidden motivations or lack a personalized understanding of the investor's situation.
One of the key lessons from Ritholtz's book is the importance of having a financial plan. This includes maximizing 401(k) contributions or at least contributing enough to receive an employer match. Ritholtz also stresses the importance of investing in a core index fund, focusing on getting market performance before pursuing active management or stock picking.
However, Ritholtz is not advocating for a hands-off approach. He suggests that what is in an investor's control includes time spent doomscrolling online, asset allocation, portfolio setup, harvesting tax losses, rebalancing, and having a financial plan.
Ritholtz warns against the misuse of numbers in the investing world, citing examples like denominator blindness, where context is needed to understand the significance of numbers like market drops or layoffs. He emphasizes that investment success depends on an individual's response to market challenges and opportunities, which is something they can control to some extent.
In addition to these insights, Ritholtz advises against mixing politics with investing and emphasizes the need for humility, recognizing that investing is hard and nobody knows the future. He also cautions against unforced errors in investing, including market timing, stock selection, manager selection, lack of awareness of costs, excessive activity, lack of awareness of taxes, and falling for pitches for high returns.
Ritholtz is not only a proponent of indexing but also notes that more than half of fund managers underperform their benchmark. He suggests starting with a core of a broad index fund and only attempting active management if desired.
While specific insights from the book regarding common sources of bad advice and misleading information were not found, investors should typically be cautious of sensationalized media coverage, unqualified advisors, investment fads, emotional decision-making, lack of diversification, misleading performance metrics, and conflicts of interest.
Beyond his work in finance, Ritholtz is the creator of The Big Picture blog and host of the Masters in Business podcast, where he continues to share his insights and provide valuable guidance to investors. With "How Not to Invest," Ritholtz offers a comprehensive guide for navigating the complex world of investing, helping investors to make informed decisions and avoid common mistakes.
Ritholtz's book, "How Not to Invest," highlights the significance of a personalized approach to investing in one's business and personal-finance. He advises against reliance on advice from experts or media pundits, instead advocating for a financial plan that includes maximizing contributions to 401(k)s, investing in a core index fund, and maintaining control over factors like asset allocation, tax harvesting, and rebalancing.
