Barry Ritholtz on the top mistake he sees investors make

• Barry Ritholtz advises investors to focus on long-term strategies over short-term trading.
• Ritholtz emphasizes managing emotions and behavior to avoid derailing investment plans.
• He suggests controlling savings rates, market consistency, retirement accounts, portfolio, and risk.

To Barry Ritholtz, investing is just like tennis.

At the top level, players like Carlos Alcaraz or Jannik Sinner win by using their impressive capabilities to hit difficult shots. At lower levels of expertise, however, many players excel simply by not getting in their own way and minimizing mistakes.

The same principle applies to investing: leave the complex short-term trading strategies to the hedge funds. For the average retail investor, a long-term, buy-and-hold strategy does just fine.

It sounds simple enough. However, the founder of Ritholtz Wealth Management finds that the biggest mistake investors make is not using this approach and instead letting emotions guide their decision-making and derail their long-term plans.

“You don’t need to be a rocket scientist, you just need to manage your own behavior,” he told Business Insider earlier in March.

“The Nasdaq is down 4% today,” he continued. “It’s not what you experience, it’s your reaction to those experiences.”

It’s not as easy as it sounds, however. In his new book, “How Not to Invest,”Ritholtz writes about Dr. William Bernstein, who unpacks the bodily forces that investors need to battle, like our limbic system, which manages our fight-or-flight responses and emotions. These are the animal spirits that market sages often say to avoid.

“Fail to manage your limbic system, he said, and you will die poor,” Ritholtz said of Bernstein. “That’s an incredible observation from somebody with a background in both neurology and investing.”

5 things investors should focus on

How can we overcome these hurdles to have our portfolios succeed? Instead of focusing on things out of their control, like macroeconomic trends or geopolitical developments, Ritholtz rattled off five variables that investors can control.

First is how the rate at which you are saving. You should be putting aside a fixed amount every month and sticking to it, he said.

Second is how consistently you are buying into the market, or dollar-cost averaging. The strategy, where you buy stocks on a regular basis (i.e. monthly), allows investors to avoid trying to time the market by investing during both bull and bear markets.

Third is whether you are taking advantage of retirement vehicles like a 401(k) or Roth IRA. They not only have various tax advantages, but employers often match contributions.

“Do you like free money? Then make sure to max out your 401(k), especially if your employer gives you a match,” Ritholtz writes in the book.

Fourth is portfolio structure, or where exactly you have your money invested to set yourself up for your desired outcomes.

“How much equity and bonds (e.g. 70/30, 60/40), which fund do you want to own (VTI, SPY, VOO, ITOT, etc), how globally diversified do you want to be (30%, 40%, 50%),” he writes.

Finally is how well you know your risk profile. Your investing timeline heavily influences this: if you need the money in just a few years’ time, it’s smarter to invest in lower-risk assets. If your timeline is multiple decades, riskier assets like stocks may be the way to go.

“If you’re 25 years old, a market sell-off like this is a blessing,” Ritholtz said of the recent market volatility. “Go buy the Nasdaq 100 and put it away for 50 years, and you’ll be fine.”

He added: “If you’re 50 years old and you still have 15-20 years until retirement, well then I’m more inclined to say the total market is where you want to be.”