Avoiding These Three Investment Pitfalls Can Put You 'Miles Ahead,' Says Author Barry Ritholtz

Investors hoping to improve their financial outcomes should focus less on finding the next big winner and more on avoiding common mistakes, says Barry Ritholtz, author of "How Not to Invest," published on March 18, 2025.

Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management, outlines three critical errors: falling for bad ideas, misunderstanding the power of compounding, and making emotional decisions.

Financial chart | Source: Pexels

"Let’s take one from three broad categories: bad ideas, bad numbers, and bad behaviors," Ritholtz said in an interview. By avoiding just those three things, he said you would be "miles ahead" of other investors.

He warns that people often lack skepticism in a financial landscape filled with questionable advice. Emotion-driven decisions, such as panic selling, can lead to poor timing and losses, while failure to grasp compounding’s exponential impact can derail long-term wealth building.

"Compounding is exponential," Ritholtz explained. "Ten percent [reinvested dividends] means the money doubles every 7.2 years."

A person counting cash | Source: Pexels

Ritholtz also criticizes overly simplistic financial advice, like cutting out $5 lattes to save for retirement. "If a $5 latte is the difference between you having a comfortable retirement or not, you’ve done something very, very wrong," he said.

For those seeking simplicity, Ritholtz echoes Vanguard founder Jack Bogle: "Don’t look for the needle in the haystack. Just buy the whole haystack," referring to investing in broad index funds to build long-term wealth without trying to time or beat the market.